How should we deal with the ‘Facebook apocalypse’ problem?


by Jon Stone    
7:43 pm - May 7th 2012

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Over at Forbes, Eric Jackson argues quite convincingly that Google and Facebook – powerful though they are now – probably won’t be top dogs on the web for long.

Are companies like Google, Amazon, and Yahoo! obsolete? They’re still growing. They still have enormous audiences. They also have very talented managers. But with each new paradigm shift (first to social, now to mobile, and next to whatever else), the older generations get increasingly out of touch and likely closer to their significant decline.

This prediction is consistent with history. You don’t see many Sony Walkmans, IBM PCs, or MySpace pages around these days.

But it also chimes with a lot of what we know about economics.

Corporate organisations are “stupid” in that they don’t learn very effectively (pdf) and in most cases, improvements to productivity and new innovations tend to come from new firms entering the marketplace with new ideas, not incumbents making incremental improvements.

To what extent this is true will vary by sector: in the UK during the 1980s, 90% of all productivity improvements (pdf) in manufacturing came from firms exiting and entering the marketplace. One look at the cut-throat history of the tech market suggests it is probably in a similar ballpark.

There are big costs to workers from a firm going bust – unemployment, atrophied skills from inactivity, mental health damage, and loss of social support networks. And there are obviously financial loses to owners of capital. But in traditional industries like manufacturing or retail this transience of firms seems to cause relatively few many problems for consumers. It’s not too difficult to switch your supplier or visit a different shop.

Interestingly, the web seems to change this. Because of the more persistent relationship users have with web services than most businesses, there are real costs to consumers when they go bust.

If Twitter folded, journalists and other social media professionals who spent years building up followers would see the foundation of their business evaporate overnight; follows to do have a very real monetary value. If Google Apps for Business went down, migrating the IT system of an entire enterprise would be costly to many thousands of firms. If Facebook went down, billions could lose their only copy personal photos, a vast history of personal messages and their address book in one fell swoop. Megaupload goes down, and millions lose unique data. If any major email provider was out-competed and folded, millions would have to change their email addresses, with all the hassle that would cause.

Firms going bust is increasingly not a cost-free situation for consumers. But it looks necessary to improve productivity and create new services, so there’s a dilemma. What could we do to ameliorate the problem?

Cost and frequency of failure
We could hope that failing firms will have good will and cushion the costs of their own failure for consumers – that Facebook would let users download all their data before they turned the lights out. But this isn’t a strategy, it’s just wishful thinking.

Another strategy is to tackle the problem from the other end – reduce the need for firms to go bust in a market, and so in turn reducing the frequency of crashes. Achieving this would have the added benefit of reducing the other associated costs of a bust for involved labour and capital, as well as consumers.

How about getting consumers more involved in decision making at companies, rather than just relying on price signals to do the job. This isn’t a new idea. Consumer cooperatives are a classic and tested model – like the UK’s Cooperative Group, where six million consumers elect the company’s entire board of directors. The Co-op is incredibly successful, widely considered to be innovative, and is one of the longest surviving large businesses in the world, founded in 1844.

If more firms were like this, they would be less ‘brittle’ and find it easier adapt to evolving preferences. But it’s impractical to expect this model to work for technology start-ups coming up with ideas.

Open source
The open source movement is in a way a type of consumer cooperative operating in the realm of software. Anyone can contribute to the code base of an open source project (provided they know how to code) so users can contribute changes they think should be made.

Whether these changes are incorporated into the main project will vary, but there’s always the option of starting your own codebase (“fork”). In a way the barrier between coders and non-coders makes these projects more akin to workers’ cooperatives, but often most coders will be enthused users, so it’s not a stretch to see them as having some consumer participation in the shaping of the direction of what’s being produced.

But there’s a problem with open source and open standards as they are currently composed. In principle, they could go some way to solving our problems. But unless they’re used by the services that most people use, their effect will be minimal.

People might learn to appreciate open standards after Facebook goes down and they lose their information, and they might pick an open service next time. But that doesn’t solve our problem either, as it happens after what we’re trying to avoid.

The lifeboat and the bridge
It seems to me there are two simple things states can do to help solve the problem.

The first is draw up an Open Data Bill and pass it into law. This would (where applicable) mandate the use of open standards by firms, and also mandate that all data held about a user is downloadable by that user, in an open standard. Open standards and access to our own data are massive public goods with huge positive externalities, but because they’re not always in individual firms’ self interest they don’t get done. This would fix that problem, and reduce the impact of the failure of services by giving users a ‘life boat’.

The second is to reform the corporate structure of larger companies to include some directors elected by consumers, rather than just shareholders. Not all the directors, like in the Cooperative Group, and not even a majority, but just a small portion of the board – say one third.

This kind of split between board members is similar to the German, Swedish and Finnish systems of electing company boards, called Co-determination – where employees elect half the directors* and shareholders the other half. Giving consumers one third would give them some input on the strategic direction of large businesses, a place on the bridge of the ship, so to speak. The benefits would reach far beyond web services – consumer appointed directors would be far more likely to put a stop to unethical business practices; think Apple and Foxconn.

You’d avoid the problems of consumer cooperatives not being very agile start-ups, since the new structure would only apply to large businesses. But like the Cooperative Group, these services would be less likely to run aground in the first place.

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About the author
Jon is an occasional contributor to Liberal Conspiracy. He blogs at The Red Rock
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Reader comments


Think you spectatcularly missed the point Andreas.

The first is draw up an Open Data Bill and pass it into law. This would (where applicable) mandate the use of open standards by firms, and also mandate that all data held about a user is downloadable by that user, in an open standard.

I like this idea a lot, and it would certainly please a lot of people.

But what if companies say it compromises their commercial interest?

To be honest, I’m pretty sure that when it arrives facebook’s demise will be slow and drawn out, like MySpace, allowing everyone who gives a toss to move their stuff organically to the new big thing.

4. Churm Rincewind

“If Facebook went down, billions could lose their only copy personal photos, a vast history of personal messages and their address book in one fell swoop.”

Nope. Only those who had entrusted sole care of their personal photos, messages, and address book to Facebook. Which in my view is a pretty stupid thing to do.

5. Just Visiting

Sunny is 100% spot on at post 2.

OpenData would be a huge public good.

I think Jackson is mainly tilting at windmills.

Google and Amazon have already survived 3 or 4 internet business generations, and continued their dominance. He may have a point with Facebook who have not had to adapt yet.

On your argument – yes but no but yes but maybe.

I’m not convinced by your argument for the Coop as a success – they had a third of the food market in 1950 and are now a bit player at under 10%. They could not cope with Tesco / Sainsbury etc, which are all venerable businesses which were more adaptable.

The bulk of evidence might show that Coops are not flexible enough. Which sectors of our economy are dominated by them? – Precisely.

On Open Source, I think a mandate might stifle innovation.

On Open Data – yes I can see the advantage of a download requirement, but I don’t want my entire life or business to be hackable so I say on request only received through a completely separate system. Though I’d say that if businesses do not have recoverable backups of their data, then it is more than half their responsibility for being foolish.

I’d see a bigger question as being how to maintain diversity / open competition in the face of the far more aggressive economies of scale of the Net which can give us close to natural monopolies.

Is there actually anybody out there who gave their real birthday to Facebook?

Wow. :-)

@2 Sunny: But what if companies say it compromises their commercial interest?

What will probably happen is Microsoft et al will have a 50 grand dinner with the Prime Minister, who will then reverse the policy.

What should happen is the government mandate that all data it consumes and produces be in open standards (with a robust definition thereof), and companies can either adatp to that mandate or FOAD.

Interestingly, the web seems to change this. Because of the more persistent relationship users have with web services than most businesses, there are real costs to consumers when they go bust.

If Twitter folded, journalists and other social media professionals who spent years building up followers would see the foundation of their business evaporate overnight; follows to do have a very real monetary value. If Google Apps for Business went down, migrating the IT system of an entire enterprise would be costly to many thousands of firms. If Facebook went down, billions could lose their only copy personal photos, a vast history of personal messages and their address book in one fell swoop. Megaupload goes down, and millions lose unique data. If any major email provider was out-competed and folded, millions would have to change their email addresses, with all the hassle that would cause.

Firms going bust is increasingly not a cost-free situation for consumers. But it looks necessary to improve productivity and create new services, so there’s a dilemma. What could we do to ameliorate the problem?

This is incredible. I can see the point – a little – about Twitter followers and such like, but why on earth don’t people take responsibility for their own backups (and children – see other thread – and all kinds of things)? Why is it the government’s responsibility to force companies or other organisations to step in?

“What could we do to ameliorate the problem?”

Educate people to not be such helpless idiots! Start with this:
http://stevenpoole.net/blog/whatever-made-you-think-it-was-your-data-anyway/

And as Poole points out, how much do you value your own data? *googles 1 terabyte external hard drive… £60* – do you value your personal photos and whatnot at £60?

Going back to Twitter followers, direct them to your own website or persuade them (‘convert’) to register for your mailing list or something you control. If they don’t follow you after the Apocalypse then they probably don’t like you as much as you thought. Christ, if you rely on them that much you are living on a knife edge.

I do wonder at people…

10. Planeshift

” other social media professionals who spent years building up followers would see the foundation of their business evaporate overnight”

They’d have to get real jobs?

Oh no.

How would they manage to complete an application form? Most of them are over 140 characters!

A certain amount of personal responsibility is required here.

Never entrust your ‘unique data’ to one storage facility. I was amazed that any Megaupload users had. Everything I think may be useful (even selected comments I’ve made on blogs) is backed up elsewhere including on my own storage at home.

An essential requirement in the choice of any software (whether on your own computer or on the cloud) is assessing how easy it is to get your data out and transfer it elsewhere. Not an afterthought. At the very minimum text or delimited values, but I always look for XML-aware software if at all possible.

12. Steve Jones

Sunny –

“Open Data” is the biggest public rip-off since the Tories privatised BT, British Gas etc.

If a large multinational corporation profits from data generated at the public expense, the public should benefit. Non-profit and non-commercial use should be royalty free, but Open should not mean Free for Commercial Use.

Let the public retain ownership of the data, let Google and anyone else who wants to play with it, and if Google makes a killing then let’s build schools and hospitals with the money.

They don’t pay any taxes as it is.

I’m not quite sure what the argument is. Businesses fail or flourish and always have done. If another business offers a similar service at a better price or a better product then its just tough luck for the ones that don’t keep up. Amazon are succeeding because they offer competetive prices and good service. If they collapsed tomorrow another retailer would soon fill the void. Anyone who relies solely on cloud storage without backups deserves to lose it, there’s no excuse despite the continuing high price of hard drives thanks to the Taiwanese floods last year. As for social networks, did the world end when Myspace faded away in favour of Facebook? Rarely is there the sudden collapse of a business that leaves people without an alternative and if any money is lost its usually on credit cards so customers are protected.

Where there is a valid point is software supplied by digital distribution and locked to a proprietary system, the many games that require an internet check or constant connection to use. Steam is a good example and points the way to the distribution model for music, games and films. It works very well after many years of hard work but if it vanished overnight there would be a great many punters who’ve spent a lot of money only to find they never actually owned what they thought they did, just licensed its use. The legal mess and loss of confidence in similar systems would cause severe damage. The protection of people’s rights regarding non-physical goods and services is something which needs dealing with very soon.

This is bizarre. While the author quite rightly notes that productivity is primarily driven by the entry and exit of firms in the marketplace, he then says that we should reduce the frequency of creative destruction in the new online economy, because the costs of it taking place are too high.

This misses the point. If the costs to its customers of a firm shutting down are high, that firm can then charge a premium for its services, thus not shutting down. Alternatively, if the costs to everyone who use that service are not high enough to warrant additional payment, the service will shut down. If Facebook suddenly needs to charge people to maintain their profile to stay afloat, then it will do so. Besides, you can already download all your Facebook data directly, and I’m sure if it went down and there was a market for it, someone would find a way to extract the info for you.

However, the standards you’re proposing effectively present a barrier to entry to new firms trying to enter the market. This will reduce creative destruction in the online sector, effectively robbing us of future Facebooks.

Schmidt,

Where there is a valid point is software supplied by digital distribution and locked to a proprietary system, the many games that require an internet check or constant connection to use. Steam is a good example and points the way to the distribution model for music, games and films. It works very well after many years of hard work but if it vanished overnight there would be a great many punters who’ve spent a lot of money only to find they never actually owned what they thought they did, just licensed its use. The legal mess and loss of confidence in similar systems would cause severe damage. The protection of people’s rights regarding non-physical goods and services is something which needs dealing with very soon.

Agreed to some extent, I do think the present rules are inadequate and the EULAs don’t tend to be particularly clear.

I don’t think the public really ‘gets’ this yet about digital products distributed in such ways – people won’t understand it until it happens to them.

It does happen – GameFly bought Direct2Drive, shut it down and didn’t transfer / provide some Direct2Drive users’ games to its own service. Electronic Arts was criticised only a week or so ago for shutting down Rock Band iOS (a decision since reversed, they claimed it was shut down in error, nothing to do with the bad publicity). In 2009 Amazon deleted versions of Nineteen Eighty-Four and Animal Farm from people’s Kindles.

“Of all the books to recall,” said Charles Slater, an executive with a sheet-music retailer in Philadelphia, who bought the digital edition of “1984” for 99 cents last month. “I never imagined that Amazon actually had the right, the authority or even the ability to delete something that I had already purchased.”
http://www.nytimes.com/2009/07/18/technology/companies/18amazon.html

(Amazon deleted the books because of rights issues and refunded their customers, but that’s besides the point.)

16. Charlieman

@13. Schmidt: “The legal mess and loss of confidence in similar systems would cause severe damage. The protection of people’s rights regarding non-physical goods and services is something which needs dealing with very soon.”

I’m starting off from the premise that we are talking about online games, games that require online licensing, data storage services etc.

Customers buy those goods because they presume that they’ll be available this week and this week next year. The price is based on that assumption.

If the companies that provide those services fail, customers have the choice to get out of that market or to pick another provider (which may mean playing a different game). If the alternative provider is going to operate a business, it has to be more efficient or more expensive.

Collapse of companies will cause massive disruption and consumer inconvenience. In what way is that different from the physical world?

17. Charlieman

@2. Sunny Hundal: “The first is draw up an Open Data Bill and pass it into law. This would (where applicable) mandate the use of open standards by firms, and also mandate that all data held about a user is downloadable by that user, in an open standard.”

This is nonsense about nonsense.

Consumers and distributors of “social” use open standards (http, https) to deliver content to and from the parasites. If you uploaded it to the parasites, tough shit. If you ain’t got a copy and the parasites won’t give it back to you, tough shit.

The primary law that needs to be drawn about these sites is that when customers delete their profile, all related content is deleted. Distribution should end immediately (in practical terms).

Charlieman,

Certainly customers can move on to another service or platform. But what about the collection or library they built up with this particular service or platform? It’s just gone – disappeared. What you thought you possessed is gone. That doesn’t happen with a physical collection, unless you have some kind of disaster at your house – my bookshelves wouldn’t suddenly empty if Penguin or Faber disappeared.

Most of the public don’t seem to quite understand yet that they have a licence to use something, they do not own it; they do not possess what they think they do, in the same sense as a physical book, film, game or album, and it can be taken away quite easily.

Not that I know what to ‘do about that’, except educate.

19. Charlieman

@18. ukliberty: “Not that I know what to ‘do about that’, except educate.”

An answer perhaps, above. Education is glorious.

If my house burned down, the loss would not be solely personal. My home looks after museum exhibits.

I do not intend my house to burn down, and I protect it. Look after your book shelves and spread the duplicates.

20. Richard W

” Another strategy is to tackle the problem from the other end – reduce the need for firms to go bust in a market, and so in turn reducing the frequency of crashes. ”

Reducing firms going bust in the marketplace would be a terrible idea. Through the magic of compound interest bankruptcies are mathematically necessary. New and better ways of doing things is precisely what creative destruction is all about. Take away the destruction of the old and you will also take away the creative side from the new. Without one you will not get the other. The system would just not work without firms going bust and they all eventually go bust. I think something like only five of the top 100 British firms at the beginning of the 20th century existed at the end of the 20th century. They get stale, complacent, badly managed, unambitious, their products lose market share, competitors create better products. The new come along doing things better and outcompete them. Why should the old not go bust? What motivates the new to do things better in the first place is to take market share and outcompete the incumbents. Things would quickly stagnate if one took away one side of creative destruction.

Because we all suffer from status quo bias firms like Facebook, Google, Microsoft, Apple, Amazon and the supermarkets all look huge and impregnable. However, they will all eventually succumb to competition from competitors with better technology. As long as they know that they will be motivated to provide a good service. When complacency sets in their days are numbered and good riddance as creative destruction unleashes its fury.

21. Charlieman

@20. Richard W: “I think something like only five of the top 100 British firms at the beginning of the 20th century existed at the end of the 20th century. They get stale, complacent, badly managed, unambitious, their products lose market share, competitors create better products.”

To survive for 100 years, the company must have done something remarkable. For a company to live for 100 active trading days is noticeable.

The old codgers who founded an old business and the old farts who run it on traditional values are probably more qualified than us to talk about its future.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    How should we deal with the 'Facebook apocalypse' problem? http://t.co/aa3e6ezm

  2. Juli

    How should we deal with the 'Facebook apocalypse' problem? http://t.co/aa3e6ezm

  3. bc

    How should we deal with the 'Facebook apocalypse' problem? http://t.co/aa3e6ezm

  4. Jason Brickley

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  5. leftlinks

    Liberal Conspiracy – How should we deal with the ‘Facebook apocalypse’ problem? http://t.co/1NH5bMJw

  6. John D Clare

    Liberal Conspiracy – How should we deal with the ‘Facebook apocalypse’ problem? http://t.co/1NH5bMJw

  7. BevR

    How should we deal with the 'Facebook apocalypse' problem? http://t.co/aa3e6ezm

  8. Molly

    Interesting read. RT @libcon: How should we deal with the 'Facebook apocalypse' problem? http://t.co/upULRMsa

  9. James Robertson

    How should we deal with the 'Facebook apocalypse' problem? http://t.co/aa3e6ezm

  10. James Grant

    How should we deal with the ‘Facebook apocalypse’ problem? http://t.co/Yceb4gwf via @libcon

  11. David Levantis

    Interesting how reliant we are RT @bristoljames: How should we deal with the ‘Facebook apocalypse’ problem? http://t.co/yg587uTz via @libcon

  12. On the depressingly low level of economic thought

    [...] Improvements in productivity is the same statement as the society getting richer. And entry and exit is how this happens. Another strategy is to tackle the problem from the other end – reduce the need for firms to go bust in a market, and so in turn reducing the frequency of crashes. Achieving this would have the added benefit of reducing the other associated costs of a bust for involved labour and capital, as well as consumers. [...]

  13. Tom Troughton

    How will we manage when Google and Facebook die? Answer: demand a lifeboat and position on the bridge. http://t.co/f98vB1Zt via @libcon

  14. Ben Lowndes

    Post on @libcon on social media: how should we deal with the 'Facebook apocalypse' problem? http://t.co/MLdCYjdX





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