Snapchat’s Domination
Main Article: Snapchat Could Overtake Facebook, Instagram Among Young U.S. Users for First Time
Useful/Supporting Links:
- Networks, Crowds, and Markets
- Snapchat’s twenty-something founders are each worth ~$4 billion
- Facebook Buys Instagram For $1 Billion
For years, Facebook has seen unprecedented growth. With the growth of other social media platforms, however, Facebook has worked to squash its competitors by acquiring them. In 2012, for example, Facebook settled on the one billion dollar purchase and acquisition of it’s growing competitor – Instagram. A year later, Facebook offered Snapchat three times that amount in the hopes of acquiring it’s growing competitor; however, Snapchat’s founders turned this offer down. It turns out that the decision to turn down Mark Zuckerberg, a decision questioned by many, was worth it. Today, Snapchat is valued at almost 4.5 billion dollars. This can be accredited to the growing popularity of the app which can be explained by three concepts we learned in this class.
One of these concepts is the network effect which is defined in chapter 17 as “for some kinds of decisions, you incur an explicit benefit when you align your behavior with the behavior of others”. From this, we can say that as more and more people actively use the social media app, there is a positive externality such that the more people join the behavior, the higher your welfare is. Because the social media app was growing at such a rapid pace, there was a greater incentive for non-users to use the app.
Second, the growth of this app can also be attributed to the diffusion of innovations. In chapter 19, we defined this as a set of studies from the 20th century which “established a basic research strategy for studying the spread of a new technology or idea through a group of people, and analyzing the factors that facilitated or impeded its progress”. Using this, we have come to understand that the decision to adopt any new behavior, in this case the use of social media app Snapchat, comes from the observation of one’s social structure. That is, whenever we decide to adopt or switch our behavior, our neighbors’, friends’, and colleagues’ behaviors will influence us.
Finally, this can all be explained by the broader topic of clusters. Essentially, clusters are distinct groups of nodes in networks. When we discuss social media, there are very few small clusters and instead there are many large clusters with a lot of nodes. Because of this, we can say that even with very few initial “adopters” of Snapchat, the technology will be seen by many people because the clusters are so big. Consequently, many people will also adopt the technology. This goes hand-in-hand with the aforementioned topics. As people in the same cluster begin to adopt the technology, personal welfare will increase due to the network effect’s influence to increase incentive for non-users, and thus the diffusion of innovation is validated as we can see that changes in behavior are impacted by our network.