I certainly think there's something to the idea that humans are wired to be very, very conscious of status. Alright. So today, I'm so excited to have Eugene Way with us Eugene, you've been blogging since 2001. Very early. Been a product person at Amazon, Hulu, Flipboard, and Oculus. And about a year and a half ago, you published an article called status as a service, which was one of those big hit tech blog posts and, got everybody buzzing and very insightful. I loved reading it myself.
And, you know, it subsequently made it to the NFX founders list audio readout, which goes out to everyone. And just excited today to talk with you because we see things very similarly. You and I, and I want to talk through and unpack some of the psychology of status as a service. And as they relate to startups, you know, the audience we have here at NFX is with early stage start And I'd love to make sure we keep going back to what early stage founders can learn from some of these key insights.
Your status as a service essay has made the rounds. You know, you basically break social works down in that article into 3 axis, utility status, and then entertainment. And let's talk about the first 2 and what lessons that we think started found can learn from this. Is there an order of operations when you're building a product, when you're building a network? Are we looking primarily for utility? Are we looking for status? Both? I'd love to dive in there.
Yeah. I think that in the long run, the ideal is to offer utility to your user base. It's the most stable sort of long term competitive advantage that you can have. However, it's also true that a lot of network based utility only is realized at some level of scale. And so the question is, you know, how do you get to that scale? Because there are, you know, a million networks that died out before they ever achieved that scale. And so I think that's where status sort of comes into me.
You know, a lot of networks that struck me as having achieved that super scale had some sort of status incentives or status games built in very early on that Beller them to achieve that sort of like kinetic energy that you need to achieve some level of scale that then increases your utility.
And I think that's I wanted to write about that because I think a lot of founders, you know, when they come up with their business plan, you're always like thinking about the utility what problem you solve for your end users and everything, but network based utility is just, you know, getting to that is a very particular sort of path I think in the article, you mentioned that it's a little bit like people were trying to do with
these ICOs a few years back where they would actually pay you in currency to develop the network. And what you're saying is early on before we had ICOs, we were actually paying you to develop the network with ego, with status with a sort of an emotional payback rather than a monetary one. Yeah. And I think, you know, one of the things that over the years as a product person, I've become more cognizant of is just really how important it is to have awareness of how your product makes people feel.
I think we're used to a very sort of, like, clinical economics driven analysis. That's very sort of like cost benefit driven, you know, every user as a rational economic actor trying to maximize some amount of benefits and overlooked in that is that a lot of times people use products that just make them feel good, and that is sort of an understudied aspect of product design and product development.
I actually think that people in the gaming world have more of an intuitive understanding of how important it is moment to moment to track your user's emotional valence.
And that's partially because game design is sort of like, you know, games are a continuous interactive experiences and, you know, if the user isn't feeling the right balance of challenged plus motivated plus rewarded in a game, they'll sure now, but I think that same principle can be applied to a lot of other products, you know, how products take off a lot of it is in how they make you feel.
If you watch any Apple keynote going back to the Steve's job stays, like, I think he is underrated for having this, like, very intuitive understanding that part of why people should buy Apple products or part of why they buy Apple products is that it makes them feel cool or it makes them feel hip or it makes them feel creative. You know, that applies to social networks just as much. You're saying that a lot of founders miss on the emotional and psychological needs of the users as well.
I think the there's some Princeton professor who got a Nobel Prize for pointing that out in economics as well that it's not just a rational or is maximizing something. It actually has to do with, you know, their psychology as Beller. And why do you think that is? Why do you think so many founders miss out on this? And maybe some of the great ones like Steve Jobs are so heavy into it. You know, that's a tough question to answer.
Part of it may just the mental frameworks that are more common in business and analysis tend to be more focused on things that are measurable or easily measured, which you know, often is some sort of utility based function. And it is harder sometimes to measure that emotional quality. What emotional payoff does your product have? You may have to actually sit in a focus group and, you know, watch the body language of someone to really understand that.
But often it's, you know, it's just in their minds, in their heads. And so the downstream metrics that capture that are sort of a little too late in the James, or, you know, we don't connect them back upstream to a user's state of mind. And I think, you know, James had kind of an intuitive sense of that. And it helps if you're a founder to sort of be that user yourself to be able to, you know, feel moment to moment how your own product is making you react.
Yeah. One thing I've seen with early stage founders is just you've got a team of people who are trying to produce a product. And maybe one person has an intuitive sense of it, but the others don't have that same intuitive sense. And so they need to be convinced, and it's very hard to convince people of emotional and psychological things where it's to convince them of utility things. Yeah. That's certainly true. Right?
Like, if you think about the average cross functional team working on a product, you have, you know, some percent. You maybe have a designer. You maybe have an engineer, and there is one model of product development that moves things through that chain in sort of an assembly line type of process.
But if you allow any one function to have total veto power over, you know, the overall product design, it only takes one person who is only thinking in a utilitarian mindset to maybe you know, torpedo, the products Morgan emotionally appealing aspects. So I do think, yeah, that's that's a a great point. And it's logical and rational in they can make those arguments easily. And maybe that's why we saw such great emotional products out of Apple because we had a dictator.
You know, who sort of imposed his intuitive sense of it on to the rest of his team. Right. Right. Maybe that's quite worked. Yeah. I mean, Apple certainly is famous for it sort of like functional organizational structure.
It has its advantages and disadvantages, but one of the advantages if you have someone like a Steve Jobs or you know, a Johnny eye of someone who has that kind of, like, overarching Pete power is that if they are very attuned to those emotional aspects of their product, they can sort of, like, shepherd those through the product design process. Right. So on the spectrum between, let's say, science and art, know, we consider movies to be more art. Right.
You know, you've got dictators of screenwriters or directors or whatever. And with tech companies, we tend not to have that. And so really what you're saying is there might be some people who just really good artists. And they're applying their artistry to these tech products, but because of the group rationality, often they get you know, muted, and then you end up with these purely utilitarian products, which don't actually shine.
Yeah. You know, it's easy to forget that product development in the tech world, in the software world is actually still a relatively young profession in the scheme of things. Right? Like, if you compared it to filmmaking, which has been around since the turn of the 20th century, you know, like, early 1900. And then you look at software design and tech hardware design. That's still a pretty big difference in how many years it's been around.
And I still actually think that if you look at just how many product development framework out there from waterfall to agile to, you know, whatever is the latest trendy version of the day. We have not yet hit upon is that everyone agrees upon our best. I think we'll converge on them over time, but it may take, you know, many more years. And also just converging on what type of mind said and what type of talent base or type of people are good at certain things. Right.
I'm reminded of a conversation I had last week with Sean Ellis and around growth, and he said that the main reason that they're so few great growth people is there's just so few humans who think both in emotional psychological and language terms Right. As well as data. Right. Right. And when you find those rare individuals, that's when you find these great, you know, growth experts. Yeah. I mean, certainly funding and everything into the tech world has flowed in like crazy.
And that's also meant that a lot of people have been flying by the seat of their pants for a long time. And, you know, we haven't had that time. For it all to settle down. We haven't had time for all that knowledge even to move from some people's heads into other people's heads. And, you know, the curriculum, if you look at the average business school curriculum or business strategy curriculum, it probably is gonna lag what's happening in Silicon Valley by quite a bit.
You know, by the time something's written up as a case study, for Harvard or something like that, you know, the entire industry has moved. So I think that type of knowledge capture and sharing probably, you know, will always be a little bit behind the state of the art. Yeah. So in the, status as a service article, you wrote that the entertainment access, you know, the if there are 3 James, which are, you know, status utility in entertainment.
The entertainment access adds a whole lot of complexity, which I'll explain another time. Can we dig into that? Where are you going with that? Yeah. Well, I'm very fond of a kind of a Neil Postman amusing ourselves to deaf kind of definition of entertainment versus he was using it in contrast to what's our definition of news. And so he said, you know, like, if you listen to a news report on something that happened in politics or something like that. Is that hard news, or is it entertainment?
And the mistake we make is often that we think something is news when it's actually just entertainment. He defines news as something that will change your behavior. So if I told you it was gonna rain today and you had to go out, James, and you decided to bring an umbrella actually news because it changed your behavior by hearing, you know, some story about some political or, you know, something that happened in the world, you know, some company getting acquired.
A lot of that actually won't change your behavior at all, and it's just entertainment. And I think there's a broader lesson to learn from that about the products that we offer to the world in tech. Many people think that their products are very utilitarian. And our our view that a lot of products that people build are actually entertainment based products.
And the reason this is important, this distinction, is that I think in the modern world because of the smartphone being always connected to the internet, you know, holding a whole bunch of different apps of all different types. What we're seeing is a collapse of the barriers that used to separate different forms of entertainment into their own sort of like vertical. So I always like to talk about when I was a child, I had sort of geographic separation of different forms of entertainment.
So I'd only watch TV in our family room because that's where the TV was. I'd only play video games in my bedroom because that's where I had a little Apple computer, and then I would load games on. I would only listen to music really in the car because that's where we had a cassette tape player and radio, and I'd only really watch movies at a movie theater, you know, with friends, you know, because that's where movies were played.
And over the years, those entertainment options have started to blend into each other. You know, we got a VCR. So we could start watching movies, you know, at home. We started to have computers that were more portable. So, you know, you could take that with you, music, over time became available in more places so you can listen to music in more spaces. But the smartphone ultimately collapses all those things into one device. So every time I unlock my phone now, I'm given a choice of anything.
Like, I can choose what my diet of entertainment is. That actually makes all these forms of entertainment actually absolutely competitive with each other. You know, in economics, we have this concept of substitutes, you know, a product can substitute for another product. But I think in entertainment, what you have is actually a lot of forms of entertainment. While they might not be fix substitutes for each other, they're close enough. They're good enough. Right?
And so you see this now, for example, with let's look at sports as an example. The major sports leagues have an aging viewership. A lot because kids today, you know, often choose to play video games instead of watching sports on TV, and you might say, well, those are 2 different things. Like, watching sports is a totally different thing than playing a game with your friends. But in that child's mind, It doesn't really matter.
They're just choosing how to maximize their entertainment value at that moment in time, and they're making that choice that it's play the video game. And so I think a lot of companies that formerly looked at their competitive set as being companies that were directly in their vertical are missing out on the fact that they now compete with companies in a variety of verticals.
And what that means is what I often tell companies now is, you know, let's say your product doesn't really have much of a social layer. And you might say, hey. Nobody in our industry has a social layer. That's not what movies are about. Movies are a passive form of the problem is if all forms of entertainment are now effectively substitutes for each other, you actually don't compete with other movie studios.
You actually compete with a game company that is built like a really fun party game social layer. And in the end user's mind, there's no distinction. So I think you compete with the best on every aspect regardless of what industry they come from. And so, you know, I think it's very critical if you're doing a startup to under end, if you are gonna be offering a product that is an entertainment based product, because that really changes your competitive set.
I'd argue a lot of things, like, you know, if you're gonna go argue politics with people on Twitter. People think of that as, you know, something heavy and serious, but I think that's just another form of entertainment. And so social media, ultimately a lot of it is just about entertainment, not utility. And that's, you know, that's just more precarious ground to be on than say, you know, if you Pete truly a utility based network, Right?
Like, if you have a network like Uber or Lyft, I mean, you're ultimately about, like, getting someone from point a to point b. That's not really an entertainment based product. So your competitive set may be more limited. So that's why I was, like, keep the entertainment access as a separate one because I actually think the competitive or strategic questions on that axis are wholly different. Got it.
Yeah. I remember a few years back, Netflix said in their annual report that Fortnite was their biggest competitor. Absolutely. But Fortnite, you know, effectively is everyone's biggest competitor in entertainment just as Netflix is a big competitor for Fortnite and vice versa. Right. And ultimately, I think we've heard this before, but it's like, it's competing for our attention. It's competing for our time. Right. And ultimately, there's certainly a certain number of hours in the day.
And so as we look at a world of the internet or of, you know, Chinese manufacturing was sort of an infinitude of anything you might want. You know, as we move to the infinity Right. Then really we're looking for scarcity. Yes. And scarcity is created by the number of hours in the day, for instance. Right.
I think about this often the idea that I was reading this book lords of strategy, which was about, you know, the Pete people who invented business strategy in the sixties was like, founders of Kinsey, Bain, and BCG, and then also Michael Porter out of Harvard Business School. And, you know, I was certainly when I went to Amazon early in my career given, like, Michael Porter's book on strategy and, you know, I had a lot of friends in consulting.
So I was certainly familiar with, like, the BCG 2 by to and and all these frameworks that they teach you in business school. A lot of them were built around a world of more defined scarcity.
And what you realize is you know, a lot of those frameworks there are not that helpful in a world of just like infinity on the world of abundance, right, because a lot of those, like, you know, supply demand, charts, and a lot of the things they tell you are, you know, like, if you were a brand manager for Tide at Procter And Gamble, and you're trying to gain, like, 3 points of market share, Some of that may be useful, but if you're in a tech world where you
have winner take all dynamics, network effects, you have things that are absolutely free and infinitely available effectively. At the edges of a lot of that, the prescriptions kind of break down or they don't work. Your intuition isn't gonna work if you're just, like, grappylating from a world of more constrained supply, a world which doesn't have as many free substitutes available.
I really think, you know, we have yet to have the goal porter of the world of abundance, but we're starting to see, you know, more people understand that, hey, strategy is pretty different in the tech world We need the lords of strategy 2.0 to help us in the digital world. Yeah. The world of abundance is just very different and not as intuitive Morgan. Right? What are some of the things that you've noticed that allow us to create scarcity?
Because in scarcity, either create scarcity or find scare because we just mentioned that there is a scarce resource of the number of hours a day in which you're awake. Right. I noticed the a leader board create scarcity. Right? There's only one number 2 slot in a leaderboard once you create it.
Yeah. Yeah. You know, as we look sort of the gamification of everything, we we realized that the world had been gamified before with US news and world report publishing the list colleges in 1981, which has set off this mad crazy game about getting into college and achieving status and that sort of thing. And they created the scarcity. Who's number 1? Who's in the top 10? Is in the top 5th.
What other ways are you seeing people create scarcity that then produces energy for people or produces businesses? Or Yeah. That's a great question. I love your US news and world report example. You know, a lot of I feel like the tension from the last generation of media to this new world of, you know, more sort of like distributed network to media. It's just that the gatekeepers that used to define scarcity have lost a lot of power in the modern world.
And ultimately, like, if you are allowed to define scarcity on any access That is a form of power. So if we were to look at, like, networked apps and things like that, you brought up lists and ranked lists that certainly gonna continue to be a really important way in which people define scarcity. And that's like, you know, working its way through every sort of vertical in the world.
I also think there is just, you know, like, if we're to look at video games, there's just a metaphor for a lot of this. And you study the video game world, You see that they've become really sort of like the leaders in the world at figuring out how to define forms of scarcity. One option in the gaming world is sort of like you have something like a Battle Royale game mechanic, which is just like, look, you know, there's gonna be one winner out of this group of a hundred people every so often.
You can look in the retail world at similar things where you have flash sales and things like that where it's just constrained inventory of something. I mean, the retail world now, we also have the idea of drops, which have become just sort of like standard operating procedure for so many retail brands. Right? Like Nike is dropping some limited edition sneaker. You're almost certainly not gonna be able to get it. And so you face the huge desire to try to get that.
And now you have huge companies like Goat or stock x that are just really built on being an aftermarket for that type of thing. I mean, I was surprised to see even baseball cards have made a comeback. Like, sports cards have made a comeback now. I feel burned from my childhood because my sports cards were ultimately mostly worth but, you know, sports cards now selling for, you know, 1,000,000 of dollars. It's absolutely stunning. I bought through my comic book collection recently as Beller.
Like, oh, I thought I had all these valuable comics turns out now. They're like worth 7 bucks. Like, actually, it's interesting to see what she say because one of the biggest asset classes in the last 7 or 10 years has been, rare cars. The growth in that area has been unprecedented because there are just a limited number of these cars. And as the ultra wealthy search for scarcity as a way to determine their status, They've found that they can have one of these cars.
Yeah. I mean, if we study traditional status mechanisms in society, just generally, it's always the case that someone is always gonna create, like, something even more scarce to differentiate because it's just as ruthless a status competition at the top as it is in the middle or as it is in the bottom of society. And so, you know, a funny example is just in LA, you have the psych or just around the world, but I think of LA because I spent a lot of time there.
You know, you have these social clubs like the Soho club, which are, you know, elite. And then in LA, now we have actually, like, newer clubs that are even more Pete, the Santa Sante bungalows, which are just like it's like even harder to be a member than it is for the Soho club. And so at the top, you see this continually recirculating James, of tightening up that scarcity.
That is ultimately just I think when you think about status, one of the important things to manage in the long run is that I think managing a network and the status dynamics within it evolves over time. It's the precarious nature of status. Right? Like, we all know that there will be some hot night club in New York, you know, 1 year, and then just one day it will die off.
And will have to be shuttered and rebranded as something new because status does have that particularly volatile quality where at scale, at some point, it can just collapse That's why I always say, you know, in the long run as a network, you wanna evolve to some utility based offering to your customers because, you know, if some service offers a utility to you, you're not gonna actually switch unless you stop wanting them to do that function for you.
You're not gonna stop, you know, using Uber or Lyft unless you find another way to get from point a to point b or you don't need to get from point a to point b anymore. I love that distinction that you've made between a network that might be personal and then something that might have utility. I remember, you know, 3 years ago when we published the network effects map, we made that distinction.
It was that, you know, a personal utility is something like, you know, messenger or WhatsApp, where if your wife messages you to pick up the kids and you don't, like, you're screwed. It's bad. So you can't leave WhatsApp or Messenger if you're using that to communicate with the wife. Whereas if you stop looking at Facebook, like your life is fine. We made that distinction back then, and you've made same distinction.
Are you seeing any companies that are navigating from just being entertainment or personal network to a more utilitarian approach? I mean, messenger adding payments Right. Yeah. Well, certainly a wallet is, like, one of the easiest ways to do it.
I think it's a little harder in the west because we have such competitive offerings on the payment side, you know, displacing credit cards has proven pretty challenging in the west because people are just addicted to their points and their miles, and they don't actually feel like it's a huge inconvenience to, you know, pull out their credit card or enter it on a website.
Whereas in the east, you saw digital payments you know, China just kinda leapfrog ahead because people there were used to using cash and, you know, a digital payment versus cash. It's just such an upgrade in utility. You know, I actually think that Apple Pay on my Apple Watch should be one of the killer products of the world.
It's actually in many ways to be better than the QR code payment mechanism that they have in China However, you know, just getting enough vendors to support it and getting people to change that behavior is just so hard. The activation energy to migrate everyone to you know, just tapping their watch on a sensor or something just, you know, it's gonna take longer.
In many ways, I actually think China is a good test case of the new world of scarcity, which asked me about earlier because I do think they leapfrog the head on many aspects and, you know, sort of live more a digital native life than even many people in the west. And so you see that they've gotten really good at all aspects of, you know, trying to define some new forms of, like, virtual scarcity. Are you seeing that on documentary, the people's republic of desire? No. I haven't seen that yet.
Oh, okay. Yeah. It's really good. I recommend it from a X you know, Chinese tech product manager, and it was really about this platform called y y in China, the video streaming 1. Crazy competition they have at the year end to define their best award winning video streaming hosts. It hosts this like award show, and it's this brutal competition among the most popular streamers to win and get that award.
And the way they measure it is just dollar volume of contributions from your fan over a specific time period. And, you know, the top streamers are all supported usually by some sort of, like, syndicate, you know, with some sort of boss that will, like, you know, make a donation of $2,000,000 or something to try to, like, boost you in those standings.
And when you watch this, you're like, first of all, you know, why would someone buy, a virtual, you know, sports car for someone that's streaming, why would you do that? That's just not as common in the west but I think it's coming. Like, I think a younger generation in the US is actually very attuned to the emotional value and the status that comes from ownership of virtual goods, whether it's in video games or elsewhere.
And I think that's like a a very big societal shift because you know, if a centralized provider can guarantee the scarcity of that virtual good, then it actually does have emotional value. Like, people who play league of legends all know, you know, how hard it is to acquire certain types of equipment in that James. And there's a flourishing aftermarket for it.
I think China leapfrog ahead of the west a little bit on that, but that type of, you know, virtually defines scarcity is gonna come to the west. And, you know, I think every product person or entrepreneur moving forward needs to just have familiarity with that tactic and that strategy of like, hey, structurally how you build your product. Part of what it's doing is defining what scarcity means on your platform. So, you know.
So that you can give out some scarcity to people in order to give them the status or the dopamine hit that they want. I remember, my partner, Pete Flint, who found it truly and ran it. He said, you know, What we learned was that the 2 ways to pay Pete. 1 is with ROI, and the other is with EGO or ego. Same idea. I've always remembered that phrase. Yeah. You know, I think some people view this type of thing as purely dystopian, and I don't necessarily.
I think it comes down to how you decide to use scarcity in your product. For example, at Amazon, early Amazon, right, we knew that customer reviews were a huge plus to the shopping experience. And we wanted more reviews from our customers. And so we created this ranked list of every reviewer on the entire site. You would have a customer review ranking of, you know, like, 12,942. It was just based on the number of, hey, this review was useful votes.
That you accumulate over some time period for your reviews. And gosh, you know, once we set that up, people went crazy writing reviews And it was especially beneficial for you to write the first review on a product that had no customer reviews, right, because anyone looking at that product would to, you know, look at your review. Do you remember when Amazon had a global sales rank? Yes. So every product on the site that a sales rank, do you remember all the authors competing.
You know, they were like, please buy my book. I need to move my sales rank up. So, you know, it was a mechanism that served a purpose at a time in the company's evolution. And then ultimately, kinda got deprecated out after it wasn't valuable. Yeah. I'm reminded of we ran a gaming company years ago. We invested a lot in gaming companies, but I remember one thing I realized was that what we were doing was creating a context, setting a goal for people saying you wanna go from here to there.
In order to get there, you have to wait. Right. If you don't wanna wait, then you have to pay. Right. And I realized that that was graft. Yep. And the same thing happens when I go to Zahir, and I wanna build something. And the guy says, hey. My cousin, you know, can get you that permit, which will take 10 months, or we can get it to you in a week. You know, I'm sure if you bought him a car, he would be helpful to you. And that's all it is. It's speedups.
You create scarcity by saying something's gonna take you amount of time, but you can pay to speed up. Yeah. It's completely virtual. Right? It's just a made up scarcity. There's no actual physical constraint on that. You are just creating the mechanism Right. Do you Pete some startups that you think are doing a good job in the last couple of years about this? I mean, because we haven't seen any new social networks really. Right?
We had musically which became TikTok, and we had Discord But since snap in 2011, we really haven't seen much of anything happen. Right. Right. I do think that on the social side, we probably, at least in the software based social network world. We haven't seen as many new interesting developments there.
I do think that, you know, if we look at TikTok, which I've written about recently, There are sort of interesting new column status games or scarce fee based games that are defined by their particular platform. Which is really sort of like a creative bar. Right?
So their algorithm, their for you page algorithm really ends up as the arbiter of who gets distribution and it's partially because they've defined a very particular type of video and a type of culture that isn't easy for certain people to replicate even if they have status on their networks. It's true that some people who are famous can go on TikTok and get a lot of followers, but that doesn't mean that they're actually very good creating the types of TikToks that go viral.
And so, you know, we've all heard probably now about a whole bunch of new influencers created essentially by just TikToks algorithm. And so I think that's, you know, part of what I talk about in status as a service is you can think of all of these things as a game. And the reason I compare them to an ICO is that there is some sort of proof of work. Right? There is some hurdle that you have to do to capture that amount of status.
And if you can define some unique form of proof of work, then you may have something that, like, James starts a new game. A new game. Right? And it's interesting because Vine came out And they said 6 seconds, but that was a good restriction to give people a parameter or sort of a blank template in which to pour something, but it wasn't restrictive enough.
And musically came along and said, no. We actually want you to use music in the background, and we want you to do a little thing, like a little dance or little. And as soon as they put even further restrictions on it, that's when it really started working. And we saw the same thing with Fiverr who said we're gonna do a marketplace, but everything has to be $5. Everyone's like, what? That's a stupid idea. That's ridiculous. Things don't just only cost $5.
Well, it turns out that it works, has a way of starting off to restrict the template enough so that an initial group of users can get excited about it and then start to build that network effect. And I found that fascinating to watch that happen with both of those companies in probably so many more examples of that like Hot Hatter who said you can only come to our marketplace from 8 to 9 East Coast time US.
And so everyone was showing up of the thousand users Everyone showed up during that 1 hour. And so there was a lot of hub up during that time. So these restrictions in order to create the scarcity drives initial white hot center type activity, which then can bleed into bigger products. It's sort of an art form to design this, right, because the risk is always that you put in some and people are like, oh, it's not even worth going through that.
Like, I actually don't care, and you just end up killing off usage of your product. So, you know, you have to define some form of restrict where enough people feel it's kinda like game design, which I know you're familiar with James. Right? Like, a lot of game design is about giving people a sense of progression.
So you need a challenge, but you also need to give people hope that they can overcome that challenge with, you know, enough time or, you know, enough grinding or enough, you know, improvement in skill level. Otherwise, they just churn out. You know, that's why they talk about games with a heavy skill cap being sort of really, like, limited in their TAM or the ultimate user base. Game like, you know, Chest has a really high skill cap. And so it's the same with status. Right?
What is your sense of progression in these social networks? If there is scarcity involved, you know, for Instagram, for example, right, in the early days, I think there was a sense of progression in that.
They had filters and things that allowed you to feel like you Pete improving as a photographer, but the part of Instagram that's challenging now is a lot of that network is about just you know, if you have a lot of wealth or something, you can post photos from amazing vacation spots or dinners or things like that where, you know, the average person is gonna be like, I, you know, that's not my life. I can't compete with that.
And so there's a sense in which you start to feel like you could turn out of that network because you're not gonna feel any progression. And that's why, you know, I often think the difficulty in all of these things is that the status dynamics are constantly shifting as more people join. Just like managing a game like World of Warcraft over many generations, you're struggling with that. Right?
Like, there were certain games in the early days where they got stocked because a new player just had no chance to compete with an experienced player that had progressed much further in the game because they just had so much more equipment or, you know, power, and it was just, like, overwhelming. So then, you know, player matching and skill matching became a huge and important art in the game world. And I think it's the same with social networks like Facebook and Instagram Omri anything.
You know, at the level of scale that they're at now, the status game and the sense of progression is gonna be way different than it would when they were just starting out. You know? Yeah. I remember back in 2010 when we were building games and people started saying it's gaming as a service.
Yeah. Meaning instead of you just put out the game when people play it, it's you're tweaking it on a daily basis to make sure the spheres don't overwhelm the shields or, you know, to make that you don't get too many rubies and the 2 little gold or you have to balance it out for people on a regular basis so that it stays in that, you know, zone of competence, right? That zone that people get into.
And that's why it's so brilliant when you came out with that article saying, no, what these social networks are doing is it's status as a service. It's like we are providing an ongoing relationship so that people can get their status hit. You know, there's a great book called IMPRO by this guy named Keith Johnston. Right. Yes. I've read it. Right. Yeah. You've read it. Right?
And the first third of it is all about how he became one of the greatest improv teachers in the world based on this one insight.
If you make status the key driver of how people act on stage, suddenly everything becomes clear, everything becomes real, and your actors are that much more engaging to the audience because they intuitively understand how every sentence, every movement displays some sort of status relationship between people and That insight that he had at some point made him, you know, the go to guy for teaching improv.
And, I thought that was fascinating that, you know, subsequent ideas are things like people who are your friends, are people who you've agreed to have status games with. You know, like, you can say, f, you, man, and the person that laughs because you're now putting them down. But they appreciate that because you're a friend and you've agreed to play status games with each other. And that's the definition of a friend. I was like, wow, powerful insight.
Look, I'm not an, you know, evolutionary biologist by trade or anything, but I certainly think there's something to the idea that humans are wired to be very, very conscious of status and that it may have come from another, you know, time in Mankind's history when, you know, your status within your small tribe or group was actually, like, critical to your, you know, survival And so that's sort of carried over to the modern world.
And the fact that we have these social networks that knit together the world that allow us to see the activity or, you know, status of other people all over the world has sort of, like, I think risen the stakes is pushed to the emotional stakes of status games to, you know, maybe an unhealthy place, but, you know, I think there's this book by Fossil, which is about sort of status in American society.
And he talks about how backsliding and status is, like, one of the greatest fears for any person in society. Like, you never wanna be seen as, like, middle class and then backsliding out of the middle class. So you don't wanna be in the upper class and then backsliding back into the middle class, you know, like, people have this, like, deep anxiety about that.
And I think, you know, there's a degree to this in our general sort of, like, economic inequality question in America right now where people talk about, you know, hey, we're starting to see class mobility sort of like stagnate. It's like a game where progression has stopped for a huge segment of society. And I just think that's just like a really important problem to grapple with.
And so I think, you know, when people design status into their apps and things, there's also, like, that aspect of, like, hey, can we do these things in a way that's productive and not detrimental to people's mental health.
Yeah. It doesn't feel as if many of the CEOs and heads of product and heads of algorithm have made that mental shift from I want my company to survive and I want it to be successful, and I wanna be successful in my career to the place of being a steward of the users or a steward of society where you have a broader on the trade offs there.
And so it's interesting about the lack of mobility because it goes back to the point you were making earlier, which is that there's this utility, but then there's the psychological and emotional.
And so it might be that from a utilitarian perspective, the stagnation in mobility has been there for 40 years but the emotional feeling of stagnation or the emotional feeling that everyone has of backsliding has now gotten to such a critical point now that we have social media and we have infinite cable channels, we can see ourselves backsliding. We can see ourselves being dished. Right?
We can see ourselves experiencing disdain from others as a lower member of the status hierarchy within the United States, and that I think is maybe more the issue is that we could have a debate. Is it more the issue that people are just feeling as if they're backsliding, or is the issue that they really are backsliding? I don't know.
Yeah. I don't know, but I certainly think in my experience that as you noted from the book in pro and other things, you know, anytime a person feels like someone else might diminish their status or lower their status. And we know status is a relative measure. Every sort of like emotional defense will fire, and that's like one of the most threatening situations people can be in.
And I think, for example, a lot of political debate on social networks can model as just kind of like team versus team James. Where, you know, everybody thinks of it as 0 sum. You know, if that person gains status, then I have lost status in some way. And we know that anytime a game is viewed as 0 sum, it becomes much more vicious, you know, in a more positive sum environment if the you know, GDP growth are higher and everything.
I think that sort of just, like, eases the tension throughout the system, but anytime you create a more directly competitive situation, We know this from game design perspectives, and then it becomes an adversarial game. And, yeah, I think that's the thing where I think in some ways, you almost, like, if you descend into a 0 sum, you know, design of status, you almost, like, can't avoid ending up in this, like, really vicious negative cycle. Sure. No. I agree.
I mean, it does feel tenuous right now in the states around this, and I think it's tenuous. I think in many other parts of the world as well. I know Israel is experiencing the same sort of problem that we are. And So what topic haven't you written about yet, but you can't stop thinking about right now? It's a good question. Well, I think one of the things that interests me more broadly.
And, you know, maybe other entrepreneurs in your network by thinking about this as well is we really you know, have long Beller out this idea that there will someday be this kind of like metaverse, like, world that more of us live in. And I've long thought that we actually have already sort of like part transitioned into it with our smartphones. I mean, yes. We're not wearing necessarily like VR headsets and spending all our days, like, those people in Wally in these, like, virtual worlds.
But, you know, most people I know today, if you look at their screen time stats, are spending a good fraction of the day with their face in their phone interacting in, you know, software constructed environments. So the fact that it's not 3e, I think, doesn't mean that that's not like a form of sort of like low fidelity metaverse.
And I do think that that is something that I'm very curious to see how that evolves because I think we'll get another turn of the metaverse, this sort of, like, lower fidelity metaverse before we get, like, the actual real sort of, like, you know, ready player 1 style metaverse. And I think the pandemic has kind of just exacerbated that. Right?
Like, we've spent the last half year a lot of us really stress testing every social app that we have because we just can't see other people the way that we used to. We can't go play And what I think you see is that a lot of our modern infrastructure for living a more virtual life just isn't there yet. Like, it's just not built out. It's not mature. There's still a lot to learn.
You know, people are using zoom a lot, but I I certainly think anyone who's used zoom a lot over the past half year would say, hey, you know, there's a bunch that needs to be upgraded for this to feel like what it used to feel like in an office. And, you know, I don't think it's any surprise that some of the biggest winners during the pandemic are party games, which give us a form of connectivity with other people in sort of a low threatening and fun environment. And so now if the race Right?
It's a race to get to building out this entire set of infrastructure for the metaverse light. It's interesting idea. I mean, basically, the smartphone Pong, if you will. Right? It's like the very initial interactive game. It's a low five version of second life, and we're probably gonna get another second life at some point that people will actually spend more time in. Yeah. And the powerful thing about this, and you see this in China too where they leapfrog ahead.
And so, you know, like, I think if you look at people's screen time stats in China. They're even, like, further ahead of where they are in the US. Like, people don't have any qualms about spending. Almost all there sort of, like, nonworking hours. Immersed in their phone in a variety of experiences. And I still wonder, you know, what those intermediate, like, key pieces of intermediate infrastructure will be.
I think we still have a ways to go building out what I think of as a sort of, like, the real time ambient presence indicator. Like, in a way, I feel like we backslid from the days when we have AOL instant messenger or ICQ or whatever. You would just leave the client open and you could just, like, alter your status time to time. And then essentially Discord does a version of that for gamers. You know, if I turn on Discord, I can see what games a friend of mine might be playing at that moment.
What's the version of that for everything than everyone? And I think part of it comes with, you know, this is the cultural diffusion quotient, which I think of in every society, part of adoption of a new product or service comes if a culture is welcoming and accepting of it. And that's often the hardest challenge. Right? Like, say what you will about Google glasses or something, but, you know, our culture wasn't ready for people wearing those type of is full time when it first came out.
Regardless for how well that product was designed, I think that cultural problem was there. And in the west, there's a lot of it forms of technology that are regarded as either by the users or by the media or both as being sort of dystopian in nature. I think part of why China has leapfrogs American Tech in some areas is just that they're a different culture with different things that are taboo. And so some things that are taboo in the are not seen as that in the east and vice versa.
I see certain products sort of like advance more quickly in different areas. So, you know, when I think about status. There's sort of like intro product status, like, how does status work within your product, but there's also just external status, right? Like, how is your product viewed by society writ large?
And I think that the other thing I would say is that I think the 1st decade or 2 of the internet and the web and the phone and everything was really focused on achieving efficiencies from going asynchronous. You know, it's like, hey. Why do I have to watch, you know, friends at 7 Pete on a Thursday. Like, Netflix is like, you can just watch things whenever it's convenient for you. And so we move to video on demand, and people are like, hey, that's generally better.
And with messaging, you know, we used to have to call people and hard interrupt them to communicate with them. And then we got email and messaging. It's like, you know what? Most things aren't that urgent. Let's go asynchronous in our communications. And people are like, wow. This is a great advance for the world. And, you know, everything is sort of like almost in every field you can Pete. There huge gains to going asynchronous.
But I think what was lost in that is that social feeling of community that comes from synchronous and synchronicity And I think there's some amount of that will come back over time, but we're like, you know, it actually does matter occasionally that a society is all watching something at the same time. You and a group of people are doing something together.
And it's not to say that all the gains from going to remote Morgan asynchronous processes will go away Morgan that I think we underrate, like, how much we feel connected to other people when we synchronously do something with them. And a lot of our social fabric, you know, our feeling of our sense as, hey, we're all Americans in this together or something James from a bunch of sort of synchronous processes and rituals, like going to church or whatever it is that are starting to fray over time.
That's when you start to feel like societies start to fracture is when you don't have that feeling of, you know, communal harmony. Agreed. Have you ever read this book called crowds in power by Kennedy? I was recommended in the book by Stanko, and it's a really fascinating book that gets into, like, kind of crowd or mob psychology.
And one of the observations, Kenny, who, you know, I think he's kind of like a, you know, a philosopher or sociologist with his hair on fire, but he talks about the Paradox, which is that, like, you know, if you're in the Mosh pit at a concert or if you're part of a group of rioters or whatever it is, actually comes a moment when you're part of that group where it's a sense of relief because you lose your sense of individuality. You actually just become one of that crowd.
And there's a way in which on social media, we generally are in this very performative mode and all the time, like, constructing the self as a brand and how just exhausting that is, right, to maintain this very distinctive identity and personal brand, but people are very attuned to status. So they're constantly grooming their social media to construct this image of their Beller.
And you know, why we start to see things like cancel culture and mobs and things like that often is that, like, we need some emotional relief from having to just be this, like, very individual and distinct brand all the time. Like, it's really comforting to let yourself go when you're in the Mosh pit. And I think that's just like a really important dynamic to understand as we start to think about how do we fix some of the more toxic side effects of social media from the 1st generation.
And I think, again, it comes down to how products make people feel. I don't think you can solve that problem unless you acknowledge that sometimes joining in with the mob to cancel someone actually feels good for Pete. Do you think that we can quote unquote fix the social networks which currently bind our society together? I fear that they are like velveeta cheese melted and poured over potatoes where they have simply taken on the form of the human psyche.
The potatoes are us And it's not as if Zuckerberg and his team has designed it. They just, AB tested their way to form fit onto our own psychology. And if they put up something and we didn't use it, then they would take it down. And if they put something up, but we used it, they would leave it there. And so what has been left there is just, oh, cast molding over the face of humanity. And anything less than that is going to be less effective.
And so to fix it will be to hobble it and to Beller will open opportunity for someone who wants to become more dark to come and build something that will get those clicks that will get that energy. Well, I'm hopeful on a few fronts. And, look, I don't know if our current social networks will be the ones to solve these problems because, you know, as you pointed out, There are probably a lot of incentives for them to keep their engagement metrics and everything the way they are.
And I'm not sure if the negative side effects will rise quickly enough to cause them to be the ones to adjust their behavior, but I certainly think some new social networks might come along, study the ones that are at super scale now and kinda learn from their mistakes. I don't know if a lot of people feel this, but I do sometimes feel a level of exhaustion with our current 1st gen social network. A lot of which have reached a stage where their growth is starting to flatline.
So they're really just, like, pulling every lever to try to sustain engagement. And I think that is problematic. I think a lot of it comes down to how you think about friction in your product. Because if you look at growth hacking and everything, so much of product design in Gen 1 Silicon Valley was remove friction, increase virality, increase engagement, increased network effects regardless of what form that engagement takes.
And so all product people have it beaten into their heads that lie Hey. You gotta remove friction from every process in your app. Like, from the sign up flow to this flow, everything has to be fast and easy, but we know, you know, my original metaphor of status comparing it to an ICO was that actually you do need a proof of work. Like, you do need some friction in the product, and it can be used for something good. It can be used to motivate certain things.
And so I think in the future, when we think about product design, we have to think about those positive forms of friction. I would argue that like a lot of news that travels on Twitter today you know, the most provocative, controversial, crazy, you know, disinformation. A lot of that problem could be solved if we applied more friction to the distribution of that stuff. But all these networks are hardwired to act like a rail gun.
You know, it's just about accelerating things that show any form of engagement. I think we have to start to distinguish between positive and negative forms of engagement. And look, I certainly don't think in the west, you know, our regulatory apparatus is pretty far behind the tech world and sort of understanding how to deal with these types of things.
But the one thing I do know is that in the long run, these social networks will either regulate themselves or eventually some form of government regulation will come. And, you know, I think tech would be smarter to try to be part of solution to be ahead of that rather than waiting for it to happen to them from a bunch of politicians who, you know, maybe really old and don't really understand. Yeah. That world?
I think that's gonna require, like we said, Stewart mentality, a mature perspective, and I don't think they've achieved that yet. It certainly seems like Pete as much of that responsibility as possible to try to maintain this idea of themselves as these neutral airwaves. Oh, we know that their algorithms are constantly Beller moment making millions of decisions about what gets distribution and what doesn't. So there's no really any way for them to retreat from that responsibility.
Agreed. Alright, Eugene. It's great to talk to you. Hopefully, we can do this again soon. I would love that. Stay well. You've been listening to the NFX podcast. You can rate and review this show on Apple Podcasts, and you can subscribe to the NFX podcast on Apple Podcasts, Spotify, Google podcasts, or wherever you get your favorite podcasts. For more information on building iconic technology companies, visitnfx.com.