The Network Business Model and It’s Destruction

Dear Friends,

It seems to me, Facebook, Youtube, Twitter, etc… monitoring their customer’s usage and using that surveillance to demonetize and even outright censor content, is like the phone company monitoring their customer’s calls, and shutting off the phones of people who say the “wrong” things over the phone. Companies like Twitter, Instangram, Youtube, electric companies and Ma Bell are networks. Another example of a network is a railroad. Imagine if a railroad decided what cargo to transport depending on the political affiliation of it’s various customers! The shareholders would go ballistic! Networks are mere roads if you will. A means to transport whatever the network is designed to carry. The phone company transports calls, the electric company hauls electricity, a rail road moves cargo, Youtube carries videos while Facebook and Twitter convey ideas. The side of the bread the butter is on is the customer’s good will. So why go to the huge expense of building a network then urinating on your customers? Doesn’t that seem a bit stupid?

Networks, as a business, are expensive to set up but cheap to run. Once they are set up and there is competition, that competition tends to become “perfect competition.” Perfect competition is where profit margins are squeezed by cut throat pricing, to gain customers at competitor’s expense, in a limited market. The railroads in the 1800’s faced just such a quandary. They cut their prices to the bone, then cut them some more, finally the government stepped in and regulated them to protect the politically connected railroad owners from competition. That resulted in the falling away of real competition and the railroads became government regulated monopolies. Each serving a certain geographical area exclusively… as they do today. Of course government only grants monopoly to those firms who pay for it through campaign donations, lobbying and graft. Modern networks might end up going that way as well. Facebook, Twitter, Alphabet and Youtube pay their tolls in campaign donations and spend gobs of money lobbying, but also pay graft in the form of censoring those ideas the elite want censored.

Networks like Facebook, Twitter and Youtube were very expensive to set up, but are cheap to maintain, once they are up and running. The paradigm of networking is exactly the same, the only difference is the traffic they carry. Facebook, Youtube and Twitter carry ideas, in the form of videos, articles, pictures and declarative statements. The people that produce the ideas are those firm’s customers and the consumers of those ideas are Facebook, Twitter and Youtube’s customer’s, customers. Since they are all vying for monopoly in their respective fields, to protect themselves from perfect competition, they must make the regulators happy, else regulations will be passed that grant the monopoly to others. So these firms censor ideas their regulators cannot themselves censor. They have become censors by proxy. While this is a tragedy for the free flow of ideas, it also endangers the investments of their shareholders. No firm, even one granted a monopoly by government, can withstand the exodus of it’s customers. Because why advertise on a network that has no viewers?

The most important factor in keeping a network profitable is by serving customers. While it is easy to believe the customers are the viewers, or the advertisers, that is not the case, the real customers are the content providers, as I said before, the viewers are the customer’s customers. Just like a railroad’s customers are the people and firms sending merchandise on their trains. If however, the railroads carried the cargo but wouldn’t release it to the end users, firms transporting their goods would turn to other means. In the case of Twitter, Facebook, and Youtube, the ideas are the cargo and by outright censoring their customers, and demonetizing them, those networks are in fact refusing to release the cargo to their customer’s customers. That is why we see people scrambling for alternatives to those networks… that have sullied their names as a means to garner the favor of the elite. Even with their huge advantage in being the first to market, and the political favor they get from the elite, their customer base is starting to corrode. Which also means their advertisers will leave and the shareholders will at some time get fleeced.

By poking their customers in the eye, Youtube, Facebook and other networks insure they will be a flash in the pan. They might burn bright for a few years but alienating customers is a certain way to get them to leave and use another network. I have stopped using Twitter altogether. I tried to delete my account but Twitter makes it next to impossible, spending an hour in the attempt, but capitulated, and instead just don’t use it, and send any email I get from them directly to the junk folder. Others are going through the court system to force them to carry all content without bias, but in the end, I believe that is a fool’s errand. Because those networks are doing the bidding of the new class progressive elite, it is obvious the elite will not force their lackeys to go against their interests. Eventually however, producers of content will migrate away from those networks, to others that are not as hostile to their customers, and so will the advertisers. The market system that the elite so hate will force the issue. Until then, I would pull any investments in those networks. Why should an advertiser pay to put ads on a network with a diminishing users base? So it is clear that the wise investor should pull their investments in those platforms intent on destroying their own business model, and invest in others that are not polluting their own drinking supply… That isn’t rain you feel running down your back.


John Pepin

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