Social Network Startup Tsu shuts down
Spammy social network Tsu shuts down
Social network startup Tsu has shut down its operations after two years due to its inability to raise further capital. As a service, Tsu eerily resembled facebook. Like facebook, users can sign up, “befriend” other users, message their friends, share status updates, and receive notifications when their friends update their profile. Distinct from facebook, Tsu users has a monetary incentive to interact with the site. Tsu paid its users a share of its ad revenue in return for posting photos and status updates. A direct result of this is that Tsu’s members only interacted with the site for monetary gain and Tsu as a company would lose money upon any interaction.
Tsu’s desperate attempt to break into an established clique of social network tycoons, such as facebook or twitter, speaks to a larger issue relating to positive externalities in regards to social media. According to the book, “An externality is any situation in which the welfare of an individual is affected by the actions of other individuals, without a mutually agreed-upon compensation. For example, the benefit to you from a social networking site is directly related to the total number of people who use the site.” (509) As the book explicitly states, users benefit from a social network when there are many people using it. This puts established social network sites, like facebook, at an overwhelming advantage over a social network startup like Tsu due to their massive user base. As a result, social network startups now have to go to extreme measures to overcome this externality dilemma. In the case of Tsu, the extreme measure was to pay its users to use their site over a site like facebook. This, clearly, is a disastrous business model that cannot sustain itself. Does this mean, however, thata new social network cannot overthrow facebook? According to network effects, a user takes into account their own reservation price for a service and the fraction of the population that uses the service to determine if they should use it. Because the established social media sites already have the majority of the population, a new social media site must be a far superior product in order to raise a user’s reservation price so that it overcomes the disparity in user base.