Ello, the economics of social and the urgent need for alternatives
Sometime during the last few days, a social novelty appeared. “Your social network is owned by advertisers”, goes its manifesto. Not quite an oddity in these times of incessant technological innovation, Ello is yet another social network. But its timing and promise — though it has been questioned by some like Aral Balkan — could truly become a challenger to Facebook’s current dominance. For that to happen, some issues and considerations will have to be addressed urgently.
Make room, fast
As it stands, Ello is on a “per invitation” basis. Currently, every user receives 5 invitation codes to share with their most motivated contacts, most of which is done via existing, competing social networks.
For those who don’t have the privilege of geeky friends putting them on top of their lists, a landing page has been set up where you can request an account. As of Friday Sept. 26th, The Guardian reported that every hour, Ello receives 35,000 requests to join. The problems and opportunities that stem from such growth are manyfold, but can be interpreted from the point of view of a well-documented economic phenomenon, network externalities :
“Network externalities are the effects on a user of a product or service of others using the same or compatible products or services. Positive network externalities exist if the benefits are an increasing function of the number of other users. Negative network externalities exist if the benefits are a decreasing function of the number of other users.” (Econterms)
An example of negative externalities is road congestion. Each additional user has an exponentially negative effect on the health of the system. That is why, as reported by The Economist, congestion pricing and tolls is one of those rare solutions where the majority of both environmentalists and economists agree fully. Less cars, not more roads, is what is needed.
An example of positive network externalities is the telephone: for every additional user that gets a phone line (or, in recent days, a mobile), the perceived value of the network increases. Eventually, you can reach everyone! This is exactly why it is so difficult to leave Facebook, and why, against all rationality and notions of self-preservation, the majority of its users have become so attached to staying with it and defending it.
Positive network externalities make us behave erratically; though Ello is a few days old to most people, some are already aggressively taking a stand against the new platform. They embody the resistance to status quo that derive from the exponential losses drawn from exiting the currently “unanimous” network structure. Each Facebook user that leaves removes significant value from it. So we all stay there. Like sheep.
For Ello to work, it needs to draw the majority of our everyday personal and professional contacts so that it can provide an alternative forum for conversation. Conversation with whoever we want, whenever we want. Unfortunately, many of those who have requested a seat at the table have not yet been granted with a response. The momentum is there ; room needs to be made, fast.
The business model
When Google+ launched in 2011, using the same invitation-driven model, a lot of people rushed to it, hoping it would become the new Facebook. Though it became clear after a few short months that it would fail miserably, it took Google nearly three years until it announced last week that it would, “stop forcing it down its users’ throats”, to paraphrase the Washington Post.
Google is a global company that makes money off of our need to know things, a lot of different things, every minute of everyday. From its monopoly position, it extracts a rent, which it uses to make marginal improvements to existing products as well as to engage in active political lobbying and spectacular caprices like its “Lunar X-Prize”. It uses data in the aggregate to push product and service, generating an entire ecosystem of customer manipulation. In a video apparition for the launch of his new book “When Google met Wikileaks”, the founder of the international journalistic organization Julian Assange asked the audience to “compare the mission statements of Google and the NSA.”
And in examining the way both entities collect, pool, store, sort, index and exploit private data, he concluded: “Really, they’re almost identical.”
What Ello promises to do is exactly not that. Its manifesto takes a strong stand against the subtle deception, coercion and manipulation that constitutes the basis of all contemporary tech giants. “You are not a product”, it concludes. But then, what are we? And how are you going to pay for lunch?
This existential conundrum will be resolved when the founders of Ello start answering the apparently simple question of their business model. Balkan’s critique lies essentially in the fact that, to build Ello, the founders have accepted 400K$ in venture capital, and so, there must be a way to pay that back. An exit strategy. Or a buy-back. Something.
Are we joining Ello only to be faced with a paywall a few months into it? Will it turn into an endless sollicitation for voluntary donations, like Wikipedia, to “keep Ello free”? Or maybe, like the naïve founders of Moves App, the guys at Ello will suddenly “change their mind” and sell-off, throwing the baby down with the users’ bath water?
In fact, what good is a manifesto if it’s not enforced by a lasting contract between parties? Wasn’t it the business model (and questionable graphic design) that ruined Diaspora’s attempt at dislodging the social giants after its successful crowdfunding campaign?
Yet Diaspora was (and remains) a nonprofit…
Clearly, the economics of Ello need to be worked out. One can deduce that the 840,000 requests a day it receives is putting an immense pressure on the development team to come up with sufficient storage, computing power, and much-needed UX and UI improvements.
All of this means buying more servers, more computers, moving to larger quarters, hiring more developers… things that require more than a few hundred thousand dollars of seed capital backed by no known plans to scale financially. Any further investment will depend on Ello’s ability to retain the millions of users it is currently attracting. Like in many social tech ventures, the business side feels like a catch 22 of sorts.
Privacy, opportunity and ownership
Though several would-be users of Ello have applauded the founders’ strong stance against monetization through advertisers, it is not certain that the majority of internet users are so strongly opposed to this model. In his 2009 book “Free: The Future of Radical Price”, Chris Anderson endorsed the free / freemium strategy, and described this model as the future of almost everything, from products to service, to software to platforms.
The fact that Ello is a for-profit entity raises questions in that regard, a point made by The Atlantic’s Rose Eveleth: “Ello doesn’t have to be storing and selling your information for you to be the product […] there are lots of ways you can be the product of a website without them selling your data to advertisers”.
Some such ways includes additional VC rounds, but also monetization through derived products, or the rise in the founders’ profiles, facilitating seed rounds in other ventures. In that, Ello’s users are indeed “the product”, simply handed differently.
Furthermore, while debating the merits of Ello (on Facebook!), a friend reminded us that New York-based startup Datacoup has been providing a marketplace for individuals to sell a feed of their personal data for a monthly fee, and attracting users who are interested in consciously sharing information much beyond what can be found on their social networks, including debit and credit card data. According to Datacoup’s founder Matt Hogan, the market for this type of self-management of personal data provision could be worth 10 to 15Bn $.
Is Ello addressing the right pain? Not so sure. But clearly, we are at a loss in the search for alternatives to Facebook. In times when even Twitter is exploring algorithm changes that will provide its users with unsolicited and rearranged streams, users have no exit strategy but to withdraw from social media altogether. A trend, perhaps, but as Jessi Hempel found out for herself, not a practical one.
Social media can be profound, and useful, and productive. The unfortunate downside is that it is owned and controlled by unscrupulous new masters, who, while certainly making everything in their power to “do no evil”, are actually eating away at our confidence in our collective ability to communicate, organize and fix the problems at hand.
The problem is obvious. The answers provided, not so much. Let’s hope Ello’s founders take it seriously, as I cannot imagine a more pressing concern for the digital becoming of contemporary society.
