Law, economics, and Facebook

August 5, 2010 8:02 AM

"The meteoric rise of Facebook raises four general questions . . . How is it possible for a teenager, however brilliant, to create a multibillion-dollar online business in such a short time? How likely is such a business to flame out? What, if any, legal protection from competition should be given to the ideas that power these businesses? And how far will social networking erode privacy or have other social consequences, good or bad?" Richard Posner (the federal judge and University of Chicago law professor best known as one of the pioneers of the "law and economics" movement [Wikipedia]) answers these questions in his brief history and critique of Facebook. (This is a printer-friendly version that may cause a print dialogue box to pop up, but it's the only link that will work unless you subscribe to The New Republic. The article is nominally a book review but spends barely any time talking about the book that's supposed to be reviewed.)
posted by Jaltcoh (41 comments total)

How is it possible for a teenager, however brilliant, to create a multibillion-dollar online business in such a short time?

"Network effects" + "First Mover Advantage" = Enormous potential


How likely is such a business to flame out?

More likely than your average Fortune 500 company.


What, if any, legal protection from competition should be given to the ideas that power these businesses?

None, are you stupid or something?


And how far will social networking erode privacy or have other social consequences, good or bad?

Lots.

Can I have tenure now?
posted by public at 8:08 AM on August 5, 2010 [12 favorites]

It is clear that Zuckerberg, like that other Harvard dropout Bill Gates, is a business genius

In what sense is this supposed to be clear?
posted by escabeche at 8:14 AM on August 5, 2010 [4 favorites]

Can I have tenure now?

No.
posted by srboisvert at 8:14 AM on August 5, 2010 [9 favorites]

How is it possible for a teenager, however brilliant, to create a multibillion-dollar online business in such a short time?

The same reason LeBron James earns what he does: luck.

Luck that he was a competent enough developer to get it off the ground in the first place. Luck that he wasn't going to State U and working 30 hours a week to pay off his school expenses. Luck he went to a school where he had friends that could bank roll a startup (I believe I read that before he started getting real financing it was costing up to $1,500 month? How many 19 year olds have access to that kind of capital?)

Zuckerberg, again like Gates, was unusual among young entrepreneurs in the software industry in deciding to retain control of the company even after it had become a large business.

Hmm, really? That's what you found in common about those two? Gates went to an exclusive school where he had access to a computer in the late 60s. How many teenagers in the late 60s had access to a computer?

Look, not to denigrate their accomplishments, but if you came to me and told me you'd give me $100 million for a website when I was 19? I wouldn't say, "I want to be a billionaire." I'd smile, accept my check, and be glad I don't have to go and live with my parents again in the summer.
posted by geoff. at 8:20 AM on August 5, 2010 [7 favorites]

Luck that he was a competent enough developer to get it off the ground in the first place. Luck that he wasn't going to State U and working 30 hours a week to pay off his school expenses. Luck he went to a school where he had friends that could bank roll a startup (I believe I read that before he started getting real financing it was costing up to $1,500 month? How many 19 year olds have access to that kind of capital?)



To add to this last one point, Zuckerberg didnt even come up with the idea of facebook, he was hired by two other kids to build a social website for harvard students. Zuckerberg saw the potential (as well as the lack of knowledge that those who hired him to do the job had) took the idea for himself and made it much better.......though he might be a genius in some sort of way, and yes his work on Facebook is much better than all other social networks, something about this event takes some of the respect I might have had for him otherwise.
posted by The1andonly at 8:27 AM on August 5, 2010 [3 favorites]

It's a good article, but doesn't really discuss the thing I find the scariest about Facebook: the way it's seemingly on a mission to replace the open, level playing field of the Internet with a closed, private network run by a single corporation.

People increasingly communicate through this single closed network. When a critical mass is reached and it becomes the default means of communication, this corporation will have an immense and unprecedented power: to monitor the bulk of communications, to make a person a social outcast by closing their account, to censor any idea it doesn't favour, to monitor the movements and friendships of almost everyone.

No dictator in history has had so much control and surveillance over so many people.

I don't understand why people aren't terrified of a single institution having this much power. I feel like I'm in a Doctor Who episode where in the Near Future everyone has decided to put their whole social life and communication apparatus under the control of the sinister Facecorp and it's never occurred to anyone that this might be a problem. The only question is whether Mark Zuckerberg turns out to be The Master, a Cyberman, or one of those humanoid Daleks.
posted by TheophileEscargot at 8:30 AM on August 5, 2010 [17 favorites]

The only question is whether Mark Zuckerberg turns out to be The Master, a Cyberman, or one of those humanoid Daleks.

Now if only there were some way to not post every detail of your life on Facebook, or to only post information that you wish to be made public. Or to have more personal conversations using some other medium.

Oh well, too late. I'm off to be assimilated. Toodles!
posted by TheWhiteSkull at 8:44 AM on August 5, 2010 [2 favorites]

No dictator in history has had so much control and surveillance over so many people.

Except that there is no control. Zuckerberg doesn't tell me what to eat, or shit, or anything.

Look, I don't know who these people are who are posting thier deepest darkest secrets are - but they aren't among the 400 or so in my friends list. And they all post pictures of their kids at the parade, lame, poorly framed vacation pictures, and stupid chain-letter "POST THIS AS YOUR STATUS AND SHOW EVERYONE THAT THIS IS IMPORTANT" status updates.

In other words, it's exactly as boring and banal as these people are in real life (myself included).

Facebook's appeal comes from three things : the utility, ease, and cost of using it. As soon as one of those stops being true, people will gravitate away.

Zuckerberg isn't Mao or Stalin. He's the dude who invented the pet rock.
posted by Pogo_Fuzzybutt at 8:58 AM on August 5, 2010 [4 favorites]

Zuckerberg isn't Mao or Stalin. He's the dude who invented the pet rock.

My pet rock just sat there.
posted by Max Power at 9:02 AM on August 5, 2010 [3 favorites]

Then one day it jumped out of my hand and through a window.
posted by Max Power at 9:11 AM on August 5, 2010 [3 favorites]

It's not Zuckerberg's "skill as a developer" that did anything for him at all. A zillion people have skills. No, in order to make a successful business you need an almost sociopathic prediliction to a) not care what anyone thinks, b) believe you are right, and c) be happy to walk all over everyone and anything in pursuit of your prize, and only make reparations later if you're forced to by a judge.

Assholes win these races often enough because they're not afraid to take the next step, step after step, whatever it may be, whoever's toes they wind up standing on.

It's annoying, really, but just evolution in action: find a niche and ruthlessly exploit it.
posted by seanmpuckett at 9:16 AM on August 5, 2010 [7 favorites]

It's a good article, but doesn't really discuss the thing I find the scariest about Facebook: the way it's seemingly on a mission to replace the open, level playing field of the Internet with a closed, private network run by a single corporation.

They're becoming AOL. That's fine. Let the Eternal September run in reverse, and leave the real internet to the rest of us.
posted by hippybear at 9:17 AM on August 5, 2010 [3 favorites]

Zuckerberg = Zoidberg.
posted by blue_beetle at 9:19 AM on August 5, 2010

Judge Posner on Facebook. Things that make you go: "What?"
posted by The Bellman at 9:24 AM on August 5, 2010

The article is nominally a book review but spends barely any time talking about the book that's supposed to be reviewed.

For the record, this is an entirely respectable approach for any book reviewer beyond about 10th grade. After that, simply "talking about the book" is for Cliff's Notes. The purpose of an academic/intellectual book review in the grand tradition of the London Review of Books or the New York Review of Books is to summarize and critique the book's thesis, sure, but moreover to respond to its ideas, to engage the author and other readers in a broader intellectual conversation.

Or at least it can be that, and it seems much preferable that it should be. After all, if you want "just talk about the book please mr. reviewer, kthxbai," there's always the back cover blurb or USA Today. Anyway, great article - thanks for posting it.
posted by rkent at 9:27 AM on August 5, 2010 [8 favorites]

It's not Zuckerberg's "skill as a developer" that did anything for him at all. A zillion people have skills. No, in order to make a successful business you need an almost sociopathic prediliction... (added emphasis mine)

And it is exactly this he has in common with Bill Gates, but in our demented Bizarro world that is what counts as "business genius".
posted by briank at 9:29 AM on August 5, 2010

How is it possible for a teenager, however brilliant, to create a multibillion-dollar online business in such a short time?

How is it possible for a university professor, however brilliant, to still be amazed at the Internet and the rapid pace of change in the business world?

There have always been teenage prodigies. Teenagers can excel at activities that require only abstract skills...

As opposed to the deep-thinking necessary of smarty smart law professors like me. Here, watch closely as I damn Zuckerberg with faint praise.
posted by Cool Papa Bell at 9:35 AM on August 5, 2010 [1 favorite]

The article is nominally a book review but spends barely any time talking about the book that's supposed to be reviewed.

For the record, this is an entirely respectable approach for any book reviewer beyond about 10th grade. After that, simply "talking about the book" is for Cliff's Notes.

Yeah, I didn't say this is a good or bad thing. In fact, I meant it as a good thing: I thought more people would be interested in reading an essay about Facebook than a review of a book about Facebook. The first paragraph or two have an "I'm going to tell you about this book" feel, so I just wanted to signal that almost none of the article is like that.

The purpose of an academic/intellectual book review in the grand tradition of the London Review of Books or the New York Review of Books is to summarize and critique the book's thesis, sure, but moreover to respond to its ideas, to engage the author and other readers in a broader intellectual conversation.

Actually, the core of the article is not even responding to the book's ideas, according to Posner. I left this out with my ellipsis, but the full quote is:

The meteoric rise of Facebook raises four general questions (none analyzed by Kirkpatrick, whose focus is on the struggle to make Facebook a viable business). How is it possible for a teenager, however brilliant, to create a multibillion-dollar online business in such a short time? How likely is such a business to flame out? What, if any, legal protection from competition should be given to the ideas that power these businesses? And how far will social networking erode privacy or have other social consequences, good or bad?

posted by Jaltcoh at 9:37 AM on August 5, 2010

Yeah, first it was AOL, then it was MySpeace, now it's FaceBook. Eventually something else will come along that offers a bit more in features with less personal intrusions and people will switch.

Same as it ever was.
posted by quin at 9:37 AM on August 5, 2010

The article is nominally a book review but spends barely any time talking about the book that's supposed to be reviewed.

For the record, this is an entirely respectable approach for any book reviewer beyond about 10th grade.

Yeah, it reads just like the book reviews I find in The New Yorker every week. Summarizing the content of the book, placing it in context, engaging the reader and hoping they will be interested enough in the topic to pick up the book for more in-depth reading on their own. The only real difference is that the New Yorker reviews often pull two or three books on the same subject together into one long review, often with compare/contrast of the different authors' approaches, etc.
posted by hippybear at 9:39 AM on August 5, 2010

When's that Social Network movie coming out anyway?

Oh, October. It says so at the end.
posted by philip-random at 9:49 AM on August 5, 2010

Facebook is interesting because of how obvious it was. Hey let's make something that is exactly like myspace but just not terrible. That's pretty much it. Ok that isn't just it. There were lots of little its that allowed it to grow as fast as it did. Initially it had a sort of mock exclusivity to it. It leveraged existing social networks and identifications. He did get lucky but at the end of the day facebook is a really good product. Really both for the users and for the advertisers and and consumers of user-data.

It isn't an easy thing to do what facebook does without being terrible. It isn't simple at the time and was even less simple 6 years ago. Myspace couldn't prevent most of your friend requests from being random hot cam girl spam. Myspace couldn't prevent every page from being an assault on the senses. Myspace couldn't offer a way to utilize this addressbook/popularity contest to do anything worth a damn. Facebook could.

Facebook's central problem for me right now is privacy but not in the corporate privacy abstract privacy problem. Rather it has the concrete privacy problem where it requires displaying the same self to everyone. That's not how humans are. I want to be someone with my friends and a different person for strangers and my employer and maybe a different person for my mom. I don't want to be less of a person necessarily for any of these people, I just want to be able to present a different truth. Or to lie. I want to be able to lie to my boss.
posted by I Foody at 9:50 AM on August 5, 2010 [6 favorites]

I want to be able to lie to my boss.

At least until he stops lying to me.
posted by philip-random at 9:52 AM on August 5, 2010 [1 favorite]

Now if only there were some way to not post every detail of your life on Facebook, or to only post information that you wish to be made public.

Once enough people are on there, it's mandatory for everyone else. Think how much trouble you'd have signing up for things or getting basic services without a phone number, driver's license or credit card. Right now, email addresses are optional. How long until Facebook URLs aren't?
posted by DU at 9:52 AM on August 5, 2010 [1 favorite]

The article is nominally a book review but spends barely any time talking about the book that's supposed to be reviewed.

...

For the record, this is an entirely respectable approach for any book reviewer beyond about 10th grade.

The claim is baseless anyway. Posner quotes Kirkpatrick extensively and summarizes the book or refers to it or the facts within it in almost every paragraph.

I'll disagree about the review, though. I didn't learn too much. :|
posted by mrgrimm at 10:08 AM on August 5, 2010

Right now, email addresses are optional. How long until Facebook URLs aren't?

Hopefully, not until Facebook becomes a public concern, run by a faceless efficient government bureaucracy ... like the post office, the motor vehicle branch ... but not the phone company ...?

Hmmm? The phone company. Reminds me of a movie I saw way back when.
posted by philip-random at 10:11 AM on August 5, 2010 [2 favorites]

Rather it has the concrete privacy problem where it requires displaying the same self to everyone. That's not how humans are. I want to be someone with my friends and a different person for strangers and my employer and maybe a different person for my mom. I don't want to be less of a person necessarily for any of these people, I just want to be able to present a different truth. Or to lie. I want to be able to lie to my boss.

Well, it's interesting that you say you want more privacy in order to be able to take on different personas and even "lie" -- that's exactly the point Posner makes in the article. But he takes a different perspective on this. He asks "whether the reduction in privacy that Facebook users experience—by the very nature of a network that invites people to share personal information, far beyond what is normal or even feasible when friendship arises from personal contact—is a social cost," and he answers:

I have my doubts. I do not share Zuckerberg’s utopian expectations for the creation of community by means of Facebook, but I do think that we tend to exaggerate the value of privacy. We do this by failing to distinguish its private value from its social value. Privacy is a powerful weapon that we wield to advance our personal interests. We reveal to others the information about ourselves that advances our projects (marriage, promotion, disability benefits, purchases, and so forth) and try to conceal the information that would retard them. Like actors, we present a manufactured self to the world.

In other words, while you might want to lie to people or adopt different personas because it suits your interests as an individual, it's not clear that it's a net good for society as a whole for everyone to have immense freedom to do these things.
posted by Jaltcoh at 10:19 AM on August 5, 2010 [1 favorite]

Like actors, we present a manufactured self to the world

Like actors? We are actors. Not that I think Facebook can materially change this fact -- but if it could, it would be orders of magnitude more disruptive to the existing social order than, y'know, letting two dudes who live together get married.

Also, I know this is a lost cause, but meteors don't rise.
posted by escabeche at 10:40 AM on August 5, 2010 [1 favorite]

In other words, while you might want to lie to people or adopt different personas because it suits your interests as an individual, it's not clear that it's a net good for society as a whole for everyone to have immense freedom to do these things.

Point taken, but at some point we must question the notion that the net good of society trumps individual rights. Social cost, in other words, isn't necessarily the only metric that we should be worrying about here.
posted by AdamCSnider at 10:45 AM on August 5, 2010

Quoting a fictional character here:

"Tell all the lies you need to in this fucked up world, but not to your friends. That's when everything falls apart. That's when the bad guys win."

Which brings us to our "Facebook Friends" ...
posted by philip-random at 10:49 AM on August 5, 2010

As for Society. If it's this crowd you're talking about, I'll just keep on lying through my teeth, thank you.

WARNING: NSFW
posted by philip-random at 10:52 AM on August 5, 2010

What Facebook had in place, when it became open to the general public, was a pretty magical algorithm that presented you with people you knew, but hadn't heard from for years.

I'm not sure when they worked that out. I made an account pretty early, since I work at a big U, but it was mostly useless to me, 'cause I'm a staffer. (signed up for alerts of free food place in the school corridors). Then I suddenly got a buch email alerts of people adding me, and logged on, and *bam* there was everyone from ten, twenty years ago. Friendster, Myspace, Classmates were useless for that. It was like the ah-ha moment when you first tried Google, after years of Yahoo and Alta Vista.

Myspace shows that you can get pretty far with a crap interface. I think Facebook's success is more comparable to PageRank, than to MS-DOS and so on.
posted by bendybendy at 11:09 AM on August 5, 2010 [1 favorite]

Facebook is having disastrous for online privacy, which will only get worse. Yet, facebook could be unseated by an encrypted peer-to-peer application like Skype, especially one that let friends share more than photos and video, i.e. friend2friend piracy.
posted by jeffburdges at 11:13 AM on August 5, 2010

Then I suddenly got a buch email alerts of people adding me, and logged on, and *bam* there was everyone from ten, twenty years ago.

bug not feature.

there's a reason why I lost touch with most of those people. nothing nefarious, I/we just got a little tired of each other, moved on to other adventures, with occasional Christmas cards as reminders ...
posted by philip-random at 11:52 AM on August 5, 2010

In other words, while you might want to lie to people or adopt different personas because it suits your interests as an individual, it's not clear that it's a net good for society as a whole for everyone to have immense freedom to do these things.

Eh? Forget lying to people (I'm not advocating that), I already adopt different personas for different people. I'm nowhere near as smug in front of my elderly relatives as I am online. My relationship with my best friend from college is not the same as my relationships with my coworkers. This happens all the time in real life and people who are unable to do this in real life tend to be very strange people.

Facebook doesn't let me (which is an interesting observation, IMHO) and I wonder if the inevitable Facebook killer will succeed because that provide an easy way to manage and compartmentalize your various personas (pictures of my kid only go out to close friends, my "boo yah" comments about Prop 8 being defeated don't really need to be seen by the grandparents, etc).

I imagine that some "famous people" (perhaps jscalzi could weigh in) have different Facebook accounts, one private and one public, for precisely this reason.
posted by It's Never Lurgi at 12:05 PM on August 5, 2010

The claim is baseless anyway. Posner quotes Kirkpatrick extensively and summarizes the book or refers to it or the facts within it in almost every paragraph.

That is simply not true. As I pointed out in my quote, he prefaces the most substantive part of his essay by saying he's about to talk about issues that Kirkpatrick doesn't talk about at all. You don't seem to have read the entire article.

I'm surprised by how much objection seems to have been taken to my tiny-font parenthetical about the hybrid book review/essay nature of the piece -- calling this a "baseless" "claim"! I was only trying to inform people about the general nature of the majority piece because it's a long article and the very beginning -- the part people are most likely to read -- isn't representative of the rest.
posted by Jaltcoh at 12:11 PM on August 5, 2010

As for Society. If it's this crowd you're talking about , I'll just keep on lying through my teeth, thank you.

WARNING: NSFW

Dude. That's not NSFW. It's NSFB: Not Safe for Brain.
posted by milarepa at 12:17 PM on August 5, 2010

... the majority of the piece ...

(Mods: could we please have an edit window that's longer than 3 minutes?)
posted by Jaltcoh at 12:22 PM on August 5, 2010

Zuckerberg saw the potential (as well as the lack of knowledge that those who hired him to do the job had) took the idea for himself...

That is what Bill Gates did with DOS, so in that sense, they're both "geniuses" of the same stripe, for seeing the potential of things that their creators did not, and taking advantage of it.

Now, I think most people who are successful in business actually fall into this pattern. Perhaps it's a real estate mogul whose success was kicked off when they realized the potential of a building or location and buying it up cheap, or an agent whose success was started when they found and promoted the living daylights out of a talented musician.

However, there are lots of things to consider about such success. How many times did they recognize potential that turned out not to be there, and lost money? How did they get the capital to buy DOS/buy the land/pay for the hosting fees/take out ads in the paper before they started making money? Why them, and not everyone else who could see that potential?

What Bill Gates and what's-his-facebook have in common that makes them stand out is that they both seemed to succeed on the first try -- but that's as much luck as anything else, and they did have capital to work with (and non-monetary benefits, like Bill Gates' access to computers in the '60s and what's-his-facebook being sent to college by his parents.) Beyond that, the question really is whether they can repeat and maintain that level of success?

From that perspective, we have no reason whatsoever to compare Bill Gates -- love him or hate him, his success has serious legs -- and what's-his-facebook, who has only done this one thing. I don't mean that as a diss -- he's made more money than I will make in a lifetime, and that's certainly a reasonable success criteria -- but that's not the same thing as being Bill Gates.
posted by davejay at 3:53 PM on August 5, 2010 [1 favorite]

Haven't RTFA yet, but this has been an interesting case study in facebook's effect on the individual and businesses that may be relevant, but probably is not FPP-worthy:

Brixx Pizza FIRES Waitress Ashley Johnson For Complaining About Tip On Facebook

The axe swings both ways -- had lots of fun reading the comments on the Pizza Joint's facebook page earlier today...their wall was full of negative comments earlier but now it's all simmering within individual comment threads:

Brixx Pizza on Facebook
posted by aydeejones at 6:26 PM on August 5, 2010 [1 favorite]

What Bill Gates and what's-his-facebook have in common that makes them stand out is that they both seemed to succeed on the first try


I also would think it helps that both of these guys have wealthy parents.....


Just saying
posted by The1andonly at 8:58 PM on August 5, 2010 [1 favorite]