Facebook in Decline

Facebook has seen consistent growth over the past few years, but it has recently seen this growth peak. The number of users is now declining, down nine million monthly users in the United States. The number of minutes that Americans spend on Facebook has also declined; however, growth in India and Brazil has increased. It is possible that growth has stopped in America due to Facebook reaching its peak and that other countries are still catching up.

Another explanation offered is the adoption of smart phones in Brazil and India which in turn has led to adoption of Facebook as a mobile app. This pattern is similar to the idea of information cascades and adoption of technology in networks: as more people buy smart phones and begin using Facebook, it becomes more beneficial for others to do so as well, especially if the initial users are friends of later adopters. Adopting Facebook on new smart phones has a higher benefit as more friends join and can derive value from being able to interact with each other on the site.

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The Rich Get Richer with Twitter Music

Twitter Music has become the perfect example of the rich-get-richer effect. The article “Why Twitter Music Is Totally Going to Work” outlines the general idea behind Twitter Music: musicians are able to send out a song to all of their followers, who are then able to retweet the track and expand its exposure to the Twitter community. If enough people listen to it, it jumps to the Popular tracks page, where it gains even more exposure. People who haven’t already heard of it from the artist or from other users that they follow can then see and listen to it on the Popular tracks page, increasing the number of listeners even further. This constant growth perfectly exemplifies the rich-get-richer effect, as more popular songs become more popular.

By creating Twitter Music, Twitter has created a reason for more people to use Twitter or spend more time on the site. It has also added an incentive for musicians to join and use the site, adding to the appeal for the general user because many of the most-followed Twitter accounts are musicians’. In a way, Twitter Music also factors into the rich-get-richer effect for musicians’ profiles: accounts that are already widely followed will gain followers as their music is passed along and joins the popular ranks on Twitter Music.

Network Effects in Cell Phones

In class we have discussed network effects, basically meaning that people derive more value from certain products, such as technology and social networks, when more people are utilizing that product. A prime example of such a product that has been developing in recent history is the cell phone. The article “Watch The Incredible 70-Year Evolution Of The Cell Phone” shows how cell phones have changed over time. Originally, cell phone technology was not especially advanced and prices were prohibitively high.

Since not many people owned cell phones, buying them made little sense to individuals, especially as the price was so high that it often outweighed the benefit people received from the product, both inherently and from the number of users. However, improvements in cell phone technology led to new activities such as texting. This development led to an increased benefit in having a phone when many people did, since texting could only be completed using a cell phone. Prices lowered so that many people were now able to afford phones and considered the benefits to outweigh the cost. The fraction of people who owned cell phones moved past the tipping point, and suddenly cell phone growth spread rapidly through the population. Now, it is actually far more unusual to encounter someone without a cell phone than with one.

The Science of Social Proof

In class we’ve been discussing how people make decisions based on the behavior of others. I had to research a similar idea in my business communications class, and the theory that I researched is known as social proof. According to the book Influence: Science and Practice, social proof occurs when “we view a behavior as correct in a given situation to the degree that we see others performing it.” Basically, the more people you see performing an action or activity, the more likely you are to join in. This principle follows the example we’ve looked at in class in terms of individuals deciding which restaurant to eat at based on how many people are already eating there, even at the expense of outside information given to these individuals.

From an evolutionary standpoint, social proof makes sense. If everyone is eating a certain food, you can assume that it is safe to eat and eat it as well. If everyone is running a certain direction, you can assume there is danger and run as well. However, social proof does not always lead to the best possible outcome. One such example is cult followings, especially deadly ones. The most classic example of this idea is Jim Jones’ cult; once one person chose to drink the Kool Aid, the rest followed in an act of mass suicide.

Another example of social proof lies not in people following others’ actions but rather their inactions. The most famous case of people choosing not to act because others wouldn’t is in the case of Kitty Genovese. She was a young woman who was murdered outside her apartment in New York while her neighbors watched. No one called the police because they noticed that no one else was doing so. Taking their cues from their neighbors, they did nothing as Kitty Genovese was brutally murdered. These examples are evidence that social proof does not always lead to the best outcome despite the validity of the behavior from an evolutionary standpoint.

Musical Search Engine

In class we’ve discussed how search engines choose which web pages to include first in a search. The key idea behind choosing the most relevant web pages is selecting the pages that have been linked to most often by other pages or hubs that are related to the topic a user is searching. The more times a web page has been linked to by other pages, the more authority it has. In many ways, websites like Pandora that select music to play based on a user’s preferences function in much the same way.

The article How Pandora Radio Works outlines the basic functions that Pandora uses. The user enters a song or artist that he or she likes, and Pandora chooses songs that have similar musical traits. The user can then choose to click thumbs-up or thumbs-down on the songs that play. Well-liked songs will lead to more music with similar musical attributes, and disliked songs will cut similar music from the Pandora playlist.

In a way, the like and dislike options on Pandora act in much the same way as links from hubs and other web pages online. When a user clicks like, he is creating another “link” to that type of music, which adds to the authority and legitimacy of that music type. This action in turn leads to more similar music, or more relevant results. Pandora is then able to choose music that the individual will like, just as search engines choose the pages that will give people the information that they most want.

The Value of the Internet

Researchers are attempting to quantify the benefit that people receive from the internet in the article ‘Net Benefits.’ They measure this benefit in consumer surplus – what the consumer is willing to pay for internet services minus what they actually pay. In class, we have discussed this benefit in the form of payoff, and the price the consumer is willing to pay as the consumer’s value for the service.

The benefits that consumers receive through the internet are varied, and not all of them are quantifiable. The wealth of knowledge available through just a few clicks of a mouse help people immensely every day, but a dollar value cannot be placed on this kind of information. However, other payoffs can be measured, such as the surplus that a buyer receives when he buys something online at a lower price than he is willing to pay for it. The wide array of available products at varying prices make this process far easier than the act of physically traveling to locate a desired good.

Several researchers also performed a survey to see how much the average internet user would pay for services – such as social networking sites and search engines – that are now free and run by ad income. The average consumer responded that they would spend $50 per month for these services, indicating an immense consumer surplus from internet services that are completely free.

However, it is also important to look at the detrimental effects of the internet. While the internet saves a great deal of time on average through its convenience, it also wastes a great deal of time when people dedicate their leisure time to the internet rather than other pursuits. It also detracts from human interaction. These factors cannot be quantified, but that does not mean that they are any less important than internet benefits.

The Origin of the Dutch Auction

I had to read the book The Botany of Desire by Michael Pollan for a class last semester, so when we started talking about Dutch auctions and the flowers that started them, I knew immediately what flower we were talking about. This article reveals the origin of the Dutch auction; it began when traders from the Ottoman Empire brought tulip bulbs to Holland. Their novelty made them an instant favorite, and the demand for the bulbs grew quickly. However, it takes seven to twelve years for a tulip to grow from a seed to a tradable bulb, and tulip bulbs are only able to be dug up and moved in the summer months. In fact, one of the most coveted types of tulips was the Semper Augustus, which was desired for its coloration. This coloration was caused by a virus, which made this type of flower even more difficult to successfully cultivate. Therefore, demand was growing higher and higher while supply had to remain relatively constant, and this situation drove prices for the flowers extremely high.

The market for tulips led to multiple new financial developments. One of these was the Dutch auction. Marketplaces were overcrowded and disorganized, so the Dutch auction was invented to get traders in and out with what they wanted as quickly as possible and at a high price. The sellers would begin at a price at which they knew demand would be zero, and then lower the price at a known increment. Once a seller reached his internal price (which we know as the true value), the buyer would place a bid. Therefore, the bid was the price equivalent of a first-priced sealed-bid auction. This method was especially beneficial to the seller, who would always get the highest possible price for the bulb they were selling; on the other hand, the buyer would have to pay his maximum internal price, or his true value.