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Comment by exelius | Hacker News Reader

It's hard to build a customer base when Facebook can just come in, copy you, and corner 95% of the market on the day they release.

This is the exact same advantage that Microsoft had in the enterprise market. Sure, competitors could release enterprise products and have some success, but if Microsoft decided to copy you, they had an army of enterprise sales agreements already in place and would eat 50% of the available market in the first year. The network effects of their enterprise sales channel -- which existed at nearly every company in the world thanks to the ubiquity of Office documents -- made it very, very difficult to compete with them for a long time.

Network effects are much stronger in the consumer space (mostly because the consumers are poorly educated about their choices, and often have little incentive to become informed). Which is why we're seeing Facebook eat the world when it comes to consumer communication platforms.

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Your use of the term "network effects" is a touch loose. Network effects refer to a situation where the product becomes more valuable with more users. This is not the same as simply having a large customer base. Probably the better way to say it: "Microsoft and Facebook both gained advantages because their customers had high switching costs."

FB users have high switching costs in terms of opportunity costs (by leaving FB they forego value) and those opportunities costs are large mostly because of network effects.

In the case of Microsoft, you say "network effects of their enterprise sales channel," when you really mean Microsoft had a large customer base to which they could quickly and easily deploy new products. The fact that one business had a sales agreement with Microsoft didn't necessarily increase the value of a sales agreement with Microsoft for a different business. (Maybe there are some network effects there, but they aren't obvious and I'm fairly sure you aren't talking about them.)

I think Microsoft did (and still does) benefit from network effects in a different way, related to collaboration: the more people who can open and use an excel spreadsheet, the more valuable it is to learn and use excel.

Worth noting that there's two axes here as well:

- Positive vs. Negative

- Same-side vs. cross-side

Network effects can be negative: if more people dine at your favourite restaurant you have to wait longer for a table. That's a negative same-side network effect. The reverse is true for facebook: more people signing up means more people to socialise with.

When you add in app developers, then cross-side effects come in to play. More people using facebook is a positive cross-side network effect, because more users == bigger market for developer apps. It's mutually positive too: more developers means more apps, more choice etc. For advertisers, the cross-side network externality is only positive from their perspective: they like having a larger audience to advertise to, whereas users generally don't like ads.

All of these combine to make facebook one hell of a sticky, and lucrative platform.

I don't think anything you're saying is untrue, but I do think you're ignoring how shady and unethical Facebook is when they feel like it.

For example, they downgrade YouTube videos in people's feeds. There's no reason for that if they have a better product.

> Network effects refer to a situation where the product becomes more valuable with more users.

Which is the case with windows. Because the product has more users it becomes more valuable to developers/business, which then becomes more valuable to users.

Well, that's the thing... Microsoft wasn't selling directly to these companies. They had a network of resellers and system integrators. And basically, outside of a few niche industries, businesses basically had to use Microsoft by default. Once these system integrators were in, they would use those relationships to push new products -- because Microsoft. The more customers, the more product categories they own, and the more system integrators using Microsoft. It feels a lot like network effects to me -- but I think I was using a broader view of their non-consumer sales strategy (Ballmer was a freaking genius in this right -- just not so much as a product guy).

The thing about Microsoft is that even in death they still rule the roost.

95% of the office workers in the developed world are still sitting in front of a Windows PC, logging into an AD, doing stuff with Office, etc. Every significant business has an EA or Select Agreement.

Microsoft is far from dead, and under Satya they've actually found their feet again :)

Why are you smiling about that?

I'm just a happy person ¯\_(ツ)_/¯

In death? The company is a major presence with billions of users across the world. They are not dying.

Yes. Tech entrepreneurs need to be very wary of platform vendors. You can and will be NetScaped. Why give away a web browser for free? Because it gives Microsoft instant dominance over the web. Platform providers work very hard to maintain their platform because it allows them to control consumer attention.

Big tech companies will only acquire companies that bring something to the table that they can't get by locking 4 of their own engineers in a closet for a year. That means a brand or patents. Any software-based tech can be copied for around a million bucks without much issue.

The other thing here is that in cyberspace, the effects of the network are enforced only by artificial legal barriers like the CFAA that make it a felony for users to contact web sites in a manner that the operator dislikes. The CFAA essentially takes the ToS (and sometimes even less; just an operator's expression that he no longer wants you to access the site can suffice the CFAA's standard of "exceeding authorized access") and evals it as part of the criminal code. This is the law under which Aaron Swartz was prosecuted.

Facebook has invoked this power repeatedly, most notably against Power Ventures, which was destroyed in court for allowing users to export their own data only, the data in which they have an exclusive copyright interest. Power infringed Facebook's copyright because it downloaded a page into RAM (RAM copies that exist for milliseconds are eligible for copyright protection per MAI v. Peak) that contained Facebook's IP in order to extract the user's information.

It's why you never see third-party exporters and have to rely on the crappy ones that Facebook/Google offer and bury so they can avoid flak.

Things would look much different if our law wasn't so thoroughly committed to entrenching the extant digital players. There's no reason that another application should be legally restrained from multiplexing/multicasting one's Facebook feed.

IANAL.

With Snapchat facebook isn't attacking with its network. It's cloning their features, but failing to actually get the very young demographic network.

Yeah, it's interesting. On the one hand, they're slaughtering the market value of of SNAP because that's based on them becoming the next Facebook-sized behemoth.

However, they're ALSO preventing a bunch of old farts like myself from signing up for Snapchat accounts so I can put mustaches on every car that drives by, and preserving it as a "cool" haven for "kids these days," thereby increasing Snapchat's value to its existing userbase.

(Anecdotally) That is correct, they are avoiding Facebook at all costs because it is for "old people"

Young people avoid the timeline because it is for old people and mostly public. Facebook knows how young people use Facebook. It is in ways you don't see. It's Messenger and private groups

Facebook also aggressively acquires competing brands that target a different/younger demographic, like Instagram.

Also anecdotal, but this past Thanksgiving I got into a chat with two nieces and a couple of their friends, all in the late-teen range.

They're really concerned about the amount of information these big data stores have on them.

They're worried even more that there is a government snoop checking in on them or another unknown.

Personally, I have gotten more and more leery of putting data online. I deleted my Facebook 7 years ago. Twitter is strictly read-only for me. I share kid pics directly with family via private storage I control.

Really needs to be a peer-2-peer suite of "social" tools that cut out middlemen as much as possible.

My daughter, who's 7, has asked me if she can have snapchat. I've never mentioned it to her or even used snapchat, so she must have picked it up at school. I don't even know if she knows what Facebook is.

Likely. My nieces (ages 5 and 8) LOVE the filters on Snapchat. We call them "funny faces". Snapchat really captivates young people.

Yep, I said what I said in the OP because my sister (11) asked me if I had snapchat (to which I replied no, but then grudgingly signed up).

Had she not been using it I would have written it off as confusing UI and "what's the point."

I suppose I'm a "young person". I prefer Snapchat because you can be yourself. It's private by default. There's no pressure to post amazing things. I often just post almost-spam crap that my friends and I find amusing - like doodles, bad selfies, a picture of a cool carpet. It's easier to avoid showing off - which I really don't want to seem like I am. The filters and drawing features make it easy to add info to a picture (location, temperature, pointing out things, etc).

I avoid Facebook for many reasons. You have to be careful about who your posts are seen by. It's public by default. I have colleagues, family, and people I've met just once or twice on there. Any posts I make need to be inoffensive and anodyne. Scrolling down a Facebook feed fills me with FOMO, jealousy, rage, or other negative emotions. It's obvious they don't actually want to improve the core product. I feel used.

If Facebook has an Achilles heel, it may well be privacy. Just as Security was first sign that the tide was turning against MS, so might privacy become for FB.

They aren't avoiding Instagram and Messenger though - which is also Facebook.

They are defending with their network, to prevent people from leaving for SnapChat.

Not really true, pretty sure Instagram is catching up fast on that sub-set of the market.

As with all things, this advantage will wither. I heard Milton Friedman once say something along the lines "There has never once been a natural [not the result of government action] monopoly that stayed a monopoly for very long." People just need patience and faith in the free market.

Friedman simply made that assertion. I basically believe it, but like so many things in Economics it's true in theory yet of limited value in practice.

First of all, on human timescales (i.e. lifetimes) monopolies can be very long lived. The Standard Oil Trust was very destructive for decades, and though it might have collapsed due to natural causes, that destruction could have lasted for decades more. Which leads to the second problem: those long periods of stagnation are multiply destructive: not only do the victims pay a premium (which they could have spent on other goods), the monopoly's existence retards innovation.

The final irony in the case of Standard Oil is that is was worth more to John D Rockefeller after being broken up than it was when integrated. The government did everyone a service by breaking it up.

https://en.wikipedia.org/wiki/Standard_Oil

"In 1904, Standard controlled 91 percent of production and 85 percent of final sales. Most of its output was kerosene, of which 55 percent was exported around the world. After 1900 it did not try to force competitors out of business by underpricing them... Due to competition from other firms, their market share had gradually eroded to 70 percent by 1906 which was the year when the antitrust case was filed against Standard, and down to 64 percent by 1911 when Standard was ordered broken up"

sounds like if you stop trying to compete other companies will

What do supposed compelled Mr. Rockefeller to choose to cease his practice of driving competing companies out of business? Some sort of personal awakening?

No. They were fully conscious of their position, in terms of economic power and monopoly. The Sherman Anti-trust Act was passed in 1890. They no doubt believed they had accumulated enough of the market to sustain dominance, while the overall pie continued to expand.

Rockefeller paid ransom sums for decades to buy out competitors (most of which were junk operators at best) to keep them from tanking the price of oil by dumping new strikes onto the market (a very frequent occurrence). His entire goal was oriented at market share + stability. The history of oil prices back then, was truly horrific, it was a constant boom and bust cycle that tortured most companies in the oil sector. Once Standard Oil accumulated enough of the market, including distribution (not as often talked about, they overwhelmingly controlled distribution), it could heavily control market pricing without having to own all the market. Their dominance in distribution is arguably the single most important thing they accomplished after the refining consolidation. With that gatekeeper status, they were able to demand other firms they didn't own adhere to their pricing levels, or have their distribution access cut off. In that way, they figured out how to stabilize the market pricing, without having to continue to own ~90% of the refining market.

I never get the impression that people who think government intervention is good have done much research on the topic.

This will be a relatively quick and dirty skim over history, but I hope it does something to dispel this belief. The comment you're replying to ignores a number of salient factors. It assumes that natural market activity resulted in Standard Oil's declining market share. It certainly was a relevant factor, but the overarching history of Standard Oil will hopefully lead you to recognize that it did not act alone.

The Sherman Antitrust Act was passed in 1890 but it was a toothless tiger until Roosevelt assumed the office of president in 1901. Prior to then, the main case involving the act was successful in using it against labor unions. Following 1901, litigation broke up a number of companies. This is important.

Investigation at the time indicated that Standard Oil employed predatory pricing up until 1900. Following 1900, they resorted to a shell-game to obfuscate what was going on.

Amongst the first wave of anti-trust litigation targets were J.P. Morgan's holdings. He was cornering the railroad and steel industries successfully, the biggest coup being the formation of US Steel in 1901. The other crown jewel in the strategy was oil, namely Standard Oil, which operated synergistically with J.P. Morgan's holdings in rail and steel. During this time, we had characters like Elbert H. Gary, CEO of US Steel, who held cross-industry dinners aimed at setting uniform pricing for steel and providing management across businesses with consolidated positions against labour organization. While it had been growing at a steady clip beforehand, Standard Oil's value began to skyrocket as of 1901 with no real change in its core business practices.

The SCOTUS' exposition of the issue does a great job showing how Oil's monopoly was mediated in large part through Rail (the case also indicates that practices wrt pipelines were analogous to rail):

"the bill alleged that the combination and its members obtained large preferential rates and rebates in many and devious ways over their competitors from various railroad companies, and that by means of the advantage thus obtained many, if not virtually all, competitors were forced either to become members of the combination or were driven out of business"

Can't transport oil if you don't have rail cars. Can't build rail cars or rail if you can't make steel, and you can't run your trains or your steel plants without oil.

In 1902, the Roosevelt directed the AG to commence litigation to break-up of the J.P. Morgan headed railroad trust - Northern Securities Company. This matter was such a high priority that the case was resolved and reported through all levels of appeal in 1904. As a side note, this is mind-bendingly fast for competition litigation, even today.

With the threat of anti-trust litigation preventing outright predatory pricing and "competitive" rail back on the table steel and oil began to lose their moats. But "competitive" rail wasn't very competitive, and continued a legacy of providing obfuscated sweetheart deals to Standard. They got broken up 7 years later as a result. By the time steel's litigation hit in 1920, it had proper competition and did not get broken up.

Or in the words of John Maynard Keynes: "In the long run, we're all dead". Which means that fixing things "in the long run" is not ideal.

I dont want to go look it up to verify and properly link a citation etc, but I think Schumpeter argued that monopolies are actually good for innovation, at least of the (what's the term?) big bang, fundamental kind, because in a highly competitive marked you can't afford to set aside a significant % of budget for fundamental r&d that's only going to pay off in the very long term and not get outcompeted in the meantime.

"People just need to have patience" for how many generations?

Standard Oil was a monopoly for over 20 years. There are countless monopolies that have gone on that long or longer, only to be broken up by government eventually.

I love the free market, but between regulatory capture, legal costs, and aggressive pricing structures, monopolies can be absolutely unbeatable within the career lifetime of any person.

Yea, its certainly still al ong time, but I wonder why anyone feels the need to try and beat a monmopoly when they are at their best? I don't think the wider consequences of eagerly busting monopolies will be positive.

Government intervention definitely creates monopolies, like in the case of telecom companies or pharmaceuticals.

But it seems many aspects of capitalism lend themselves to winner take all mechanics, resulting in large companies (airliners and telecoms and entertainment companies) constantly merging and reducing competition. So without the FTC, we might have even more monopolies. Without these laws, Microsoft would be the only PC company (MS bailed apple out to keep some "competition" around) and Intel would be the only manufacturer of CPUs (likewise for Intel and AMD).

Well yeah. This is the "natural" monopoly that Friedman referred to (and dismissed). From the Mother of All Wikis:

"Natural monopolies arise where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual or potential competitors; this tends to be the case in industries where fixed costs predominate, creating economies of scale that are large in relation to the size of the market, as is the case in water and electricity services. The fixed cost of constructing a competing transmission network is so high, and the marginal cost of transmission for the incumbent so low, that it effectively bars potential competitors from the monopolist's market, acting as an early insurmountable barrier to entry into the market place."

There's a good argument to be made here they all software sub-markets are natural monopolies.

Who can say what would have happenned long term? My assumption is that a true monopoly is not sustainable, but I could be wrong. I don't think the evidence is there that microsoft would remain king for long.

Facebook may be at their best, but I can still imagine the possibility of a better social networking experience. At the very least, a for-pay service where users (rather than advertisers) are the customers could result in a better product.

But we'll never know, since nobody else can reasonably enter the market.

In this case, it's hard to see the problem with facebook being broken up. Who, exactly, loses?

> In this case, it's hard to see the problem with facebook being broken up. Who, exactly, loses?

No one except Zuckerberg, I'd think.

However, it raises an interesting question: how exactly would you break up an entity like facebook? It doesn't seem like a business that would lend itself to subdivision.

Just as Microsoft was required to open up its Win32 APIs, one possible remedy here would be for Facebook to be forced to allow users to receive/make posts from/to their Facebook friends on any competing site, and allow people to log into those competing sites using their Facebook accounts (using a single sign-on system like OpenID Connect / OAuth 2.0).

That way each competitor could offer its own interface and algorithm for filtering people's feeds, and show their own ads (or offer a competing business model). If users opted to have their posts on the competing site automatically sent to Facebook (so their Facebook-only friends could still see them) then Facebook would be free to data-mine those posts still.

The next question is, could someone code a browser extension or other tool which makes this possible without needing any changes from Facebook's side? If it would break the Facebook terms of service, would someone crowd-fund the anti-trust lawsuit to override those terms?

People have tried to just "code around" these centralization issues, but Facebook/Google have a lot of developers that can put a lot of time into identifying/rate-limiting/blocking unauthorized use of their API's. Nothing has been able to get past the "but does it work almost all the time" barrier that those engineering efforts put in the way to technically circumventing centralizaiton.

Geographically, like a phone network.

Then mandate interoperability with an open standard, like a phone network.

> Geographically, like a phone network.

I don't think that makes much sense for breaking up something like Facebook.

Unlike a phone network, Facebook's service is not rooted in geography. Yes, it's users have homes and geographic locations, but those are just arbitrary account attributes, just like their name or if they like the Denver Broncos. You might as well have one post-breakup company start out with all the A-M accounts and the other the N-Z accounts.

If you had to divide up the users between N successor companies, I'd probably be best to do it based on friend-graph connectivity, with mandated interoperability between them. That might make the successors sticky enough to survive.

There's a high correlation between geography and social graph, while the part of the social graph that gets "cut" will give an incentive to make interoperability work, as people will care about it.

So your premise is true(ish), but the conclusion can't be drawn from it (and your comparison falls apart) because we don't need strict dependency on geography, only a (relatively strong) correlation.

Why not make an open soure alternative? How much do you hear about blogger.com and livejournal after Wordpress came out? How much do you hear about AOL after the Web came out?

They've already tried. But the biggest thing about social networks is that they really only work if the people you want to be connected to are there. Diaspora was an open source social network, and it went nowhere. Ello was supposed to be a social network that didn't sell your data, and they ended up not being able to make it as a social network. They're still around, but they've pivoted a little.

Because there are open source alternatives. Nobody uses them. Nobody used google plus, and that was a realistic replacement.

Oh yeah? Please list the top 3 alternatives which are open source.

GNU Social, Diaspora, and Friendica

The consumers, no? They get inferior products. Who wins? Seems like its just people who want a piece of the pie, and do they deserve it? Doesn't seem like it.

I'd argue Facebook's purchase and integration of other products is what made them inferior.... How exactly does facebook owning instagram and facebook help the consumer? They didn't need to buy it to integrate it into feeds, and that's not how most people consumed instagram anyway.

Hell, the main benefit I see to instagram is that their geotagging improved immensely.

How is it worse for the consumer, though? I don't see how, under capitalism, its even possible for an abusive company to maintain a strong position.

> I don't see how, under capitalism, its even possible for an abusive company to maintain a strong position.

Network effects. Together everyone hates it; individually, there is nowhere else for people to go without losing the majority of your social network. Facebook has people; its software is utterly irrelevant to why people use it.

There's nothing about that action which would imply that consumers would get inferior products.

"But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again. "

John Maynard Keynes

You are correct, but when somebody quotes Milton Friedman and says things like "have faith in the free market", you're probably not going to change their mind with a quote from Keynes.

The point is not to change their minds, it's to change the mind of anyone who may happen to read both quotes.

Whys that? Is that an offensive thing to say? You seem to think I'm incapable of changing my mind, why? You don't know me, and you think you do. Unbecoming behavior.

EDIT: And downvotes, too? I've been insulted, and I don't take kindly too it, yet I deserve to be downvoted? Thats ridiculous.

Keynes: "the market can stay irrational longer than you can stay solvent" which I think speaks to the frustrations of the current line of entrepreneurs.

I like the free market and I think letting the free market do its thing is a good default solution to a wide range of problems.

I don't have faith that the free market will solve any problem well if we just wait long enough though. Nor do I believe that it's wise to just sit around and refuse to fight injustice because the problem might solve itself out in 50 years.

In this specific case, I think the network effect of social networks (ie it only makes sense to use a given social network if the people you want to communicate with use it as well) is so strong that the unregulated free market is not a good model to solve that problem.

it is government action that keeps Facebook monopoly!!! Facebook, Inc. v. Power Ventures, Inc. https://en.wikipedia.org/wiki/Facebook,_Inc._v._Power_Ventur....

FYI, HN seems to be mangling the link by excluding the final period from the link href.

en.wikipedia.org/wiki/Facebook,_Inc._v._Power_Ventures,_Inc.

Isn't Patience the problem? It will give enough time for these monopolies to rack up money and establish dominance and driveaway several upstarts.

That's about as qualified a statement as you can get, that is no doubt true in the alternate universe where no government exists.

Is there really a free market? Electric vehicles were squashed for a long time because oil wanted it to be that way.

The smart phone is what made electric vehicles practical. That solved the chicken or the egg problem as it pertained to batteries cost & battery manufacturing scale.

There was no scenario under which the electric car was going to take off until lithium batteries were radically cheaper and available at truly massive scale. Mass market consumers do not want to drive EVs that get 50 or 80 mpg equivalent and cost $50,000.

Tesla came along only when it was finally becoming possible to do a nice EV thanks to falling lithium battery prices, at a low enough price point that well off consumers could afford them. The rest is history.

> Electric vehicles were squashed for a long time because oil wanted it to be that way.

Could you explain a little more? I have not heard any credible evidence to support this theory.

Also, I don't see why a monopoly is inherently bad. If consumers actually benefit from it then what's the rationale in breaking it up? Moreover, sectors like social networking naturally favor monopolies; it's no good if your friends are scattered around 10 different sites.

The current understanding of US antitrust laws is similar. The Justice Department pursues antitrust actions only if the end consumer is being hurt.

Monopolies maximize profit by setting a price greater than the market clearing price, causing a lot of unmet demand.

Except that price must be below what competitors will offer.

No. This is the problem with monopolies. They use other advantages to win markets without competing on price, features, or innovation. It's harmful to consumers.

A monopoly by definition has no competitors.

Yes it does! It has all the competitors that could and would be started if prices rose.

You're counting hypothetical competitors? So how do you propose measuring how many competitors there are in a particular market? With that definition, there are an infinite number even if I can currently purchase from only one vendor.

> It's hard to build a customer base when Facebook can just come in, copy you, and corner 95% of the market on the day they release.

Not really. Snapchat is getting copied because its functionality enhances the strategic value of Facebook's core assets. There are plenty of other businesses that would be easy for Facebook to copy technologically, but doing so would undermine the value of Facebook's core assets. Basically Snapchat brought a knife to a gunfight, with the expected results.

Which is why Facebook can just leverage their login system to see when another site has a viable userbase and then just add the feature to Facebook. They're doing it with GoFundMe right now.

The nature of Facebook makes it also far more easier to release and distribute new products. People come to your service every hour -- on the other side none (should have) wanted to visit Microsoft's homepage, which makes the enterprise agreements a necessity, that doesn't scale (by any means) as well, although MS managed to scale pretty well.

Almost makes you wonder if there isn't a very strong anti-trust case here.

On what grounds? Simply being a monopoly isn't grounds for anti-trust action. It requires some sort of anti-competitive behavior.

Now, one could posit an argument to the effect that monopolies in areas that are highly subject to network effects are inherently anti-competitive. But AFAIK that would be a rather novel argument and it's hard to say what the remedy would even be.

It seems to me they are leveraging their monopoly position in one area to dominate competitors in other areas. IANAL, but isn't that the very reason antitrust exists?

Anti-trust is tricky and depends on defining the markets, defining what constitutes a monopoly, the barriers to entry, etc. Is Facebook in a different market from Snapchat or are they all part of a general "social media" space?

"news feed social media" vs "pictures social media" vs "augmented reality social media" vs "virtual reality social media". Facebook should want competitors tbh. Even if Peter Thiel manages to convince Trump to tell the Justice Dept. to back off, I doubt the European Commission will agree.

Facebook also has the data. They see at first glance any uptake of a new social network of any kind. They automatically prevent sending invite-links or even just invite text messages via FB posts, FB chat, WhatsApp. So if you try to reach all your friends and try to invite them, you can assume only a few will even see the post in their newsfeed, get the chat post - it's like shadow banning posts. They create a filter bubble for you.

Yea, in order to compete with FB in the social network space you basically need a service that would somehow break Facebook's entire model to copy. It's one thing to add a feature but entirely different to break your entire mode of operation.

You should checkout how Tencent build its empire in china from QQ. That's more like where facebook learned from.

Do you have any articles about this? I'd be interested in learning a bit more about the history of Tencent.

This is true. I'm curious if Microsoft Teams would/could do this to Slack.

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