What is common to Facebook, the telephone and the QWERTY keyboard

facebook-logoVivek Kaul 

Are you a Facebook addict, dear reader? I clearly am, given that I spend all my waking hours logged on to the website. On days, I am not near my computer, I keep regularly checking for updates on my mobile phone.
So what is it that makes Facebook work? My ‘back of the envelope’ theory is that the website feeds on our internal voyeurism, meaning, you can see the honeymoon pictures of a couple, who did not invite you to their wedding.
But that’s making things a way too simplistic. Or as Albert Einstein once said “It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” This Einstein quote has been suitably paraphrased as “everything should be made as simple as possible, but no simpler.”
Given this, my “back of the envelope theory” needs to be worked on a little more. So what is it that makes Facebook work? Economists have an answer and they call it “network externality”, which are basically markets “where demand for a product creates more demand for the product”. As Paul Oyer writes in his fantastic new book 
Everything I Needed to Know About Economics I Learned from Online Dating “A product has a network externality if one added user makes the product valuable to other users…The rise of the internet has made network externalities more apparent and more important in many ways…Perhaps the best example of the idea is Facebook. Essentially, the only reason anyone uses Facebook is because other people use Facebook. Each person who signs up for Facebook makes Facebook a little more valuable for everybody else. That is the entire secret of Facebook’s success—it has a lot of subscribers.”
This to a large extent explains why Facebook has retained its dominance despite being challenged by Google. In fact, when Google launched Google+ many experts said it was a much better product than Facebook, and hence, they felt that people would gradually move away from Facebook to Google+. But that really hasn’t happened.
As Oyer puts it “Over the last few years, Google has made one attempt after another to develop a viable alternative to Facebook. Google+, its most recent attempt, is widely touted as functionally superior to Facebook. Google+ has signed up many users, but it has not put any real dent in Facebook’s dominance. Nobody is going to switch to Google+ from Facebook unless most of her friends do, too, and it seems very unlikely that whole groups of friends will act in a coordinated fashion to move from one social network to another.”
In fact, the idea that a product’s demand is based on the product’s demand is not a new one. It has been around for a while. Take the case of the telephone. It was first patented by Alexander Graham Bell in 1876. But it took a long time to get popular.
“The demand for Facebook is essentially exactly the same as the demand for telephones. Why do you have a telephone? Because everybody else has one. It was a bit difficult to get people to use telephones at first. But each new user made the demand for phones a bit higher, because a phone became more valuable to everyone else. The same logic applied to fax machines when they were first introduced,” writes Oyer.
Another excellent example of a product that worked along these lines is the Q-W-E-R-T-Y keyboard. This keyboard was developed by two newspaper editors in the United States and sold to E. Remington & Sons company. The Remington company made adjustments to the design and popularised the layout through its typewriters. It needs to be pointed out that the QWERTY keyboard was designed to take into account the practical problems of the day.
“One noteworthy feature of the Remington design is that it avoided putting letters that commonly followed one another (such as 
and h) next to each other to prevent the arms from jamming when keys were pressed in succession. Furthermore, the letters in each row are slightly offset from the row above because the arms attached to them had to go up to the paper without hitting one another,” writes Oyer.
But these features were relevant when people used typewriters (having learnt to type on a typewriter, I can vouch for this). They are not relevant anymore, when the world has moved on to computers. In fact, it is widely suggested that DVORAK keyboard layout is much better than the QWERTY layout. This keyboard tries to minimize the distance travelled by fingers and at the same time tries to “make the typist alternate hands on consecutive letters as often as possible.”
But QWERTY keyboards continue to be as popular as they were. As Oyer puts it “Once it became a standard, everyone wanted to use the QWERTY keyboard because that’s just what everyone else was already doing. The QWERTY keyboard story must make Facebook executives very happy.”
Given this, it will not be easy for a product which is similar to Facebook to break its monopoly, even though it may have features that make it a better product overall.

The article originally appeared on FirstBiz.com on February 10, 2014

 (Vivek Kaul is a writer. He tweets @kaul_vivek) 

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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