The “social network” is the buzzword of the day. Omnipresent in the social media, on TV and printed magazines, it is the darling of researchers around the world. Collaborative participation makes the social network, probably the biggest innovation since Internet, a positive phenomenon. Bringing people together to collaborate on solving problems releases a huge amount of creative energy on a global scale. Social network is a mystery as well: why are people so attracted to social networks?

In the past few years, a huge wave of websites built around the core concept of social network has been quietly gathering momentum. These systems link people, information and things through social relationships and essentially they try to solve a resource allocation efficiency problem by creating superfast links that have the effect of eliminating a real or an imaginary middle-man. If you think about it, the social network as it is understood today is the in fact another expression of the intrinsic social network that is the Internet.

To use terminology borrowed from psychology, the social networks (like Facebook) are conscious social systems, while the Internet is the massive subconscious domain that no-one can ever measure or fully understand its inner workings. When we look at social networks we only see a tiny little tip of the iceberg as what really drives us is way down below the surface. In this post I am looking at behaviour towards consumption mediated through social networks.

At its core the social network is a way of trading ideas between participants. If you abstract the social network to a system where parts exchange things through the use of an agreed currency, the social network is really an equalizer that moves things from one part to another in an attempt to restore equilibrium. If there is no external input, with time the system would reach that point. But as it happens, the social systems are far from being close and events keep triggering new imbalances and social networks busy: there is always something to talk about and share.

In its first iteration as a digital network, the web was a system that united resources using hyperlinks. Later with the rise in computing power, the hyperlinks started to be used to bring people together through more sophisticated interactions. Merely accessing documents (resources or things) across network was not enough to establish equilibrium. Discussions needed to occur to solve more complex problems, hence the need to facilitate communication between people using the very same network. People became extensions of things and things became extensions of people.

The social networks have generated a boom in communication. Not only has the communication gone up but the number of social networks has gone up, which leads to even more communication needed to trade and reconcile different ideas. You can hardly find a more powerful addictive cycle than this.

There are three distinct phases in the history of social networks on the Internet (so far): linking resources, linking people and linking services. The first phase was marked by the invention of the HTML, the second was marked by the rise of Facebook and the third is underway right now. This is about linking services in its many forms. Think ZipCar, Foodspotting, DriveMyCar, TaskRabitt, AirBnB and many similar applications that link people and services and things matching demand and supply at a scale, transparency and affordability that was never possible before Internet. The third form is social networked consumption, because in addition to performing the functions of the previous two forms it plays direct roles in the consumption supply chain (for example marketing and distribution).

The underlying phenomenon is the collaborative sharing that occurs in many ways from simple posts to feedback and rating and from questions and answers to actions that end up in economic transactions. Why are so many people suddenly ready to share things for free or pay a small fee for using someone else’s asset or mini-service?

Let’s assume this will go on and spread like wildfire in the next five years. One could say that this is a very efficient way of using resources which in the long run is good for the environment. People will learn how to live by consuming less and focus on social values. If we look into the future and extend this trend there will be a point where production would have to go down drastically because the use of the goods is so much more efficient through instant sharing.

This newly found frugality would see the auto manufacturers pulling their hair in desperation because instead of five families buying five cars they will buy maybe two cars and share them. Of course this is a totally theoretical speculation because in practice it is difficult to share assets to perfection in such a way that the usage level is constant but the number of resources is greatly diminished. This schedule is impossible. Nevertheless, the demand for expensive household products would have to come down if this model becomes a general life style choice.

The creativity born out of social sharing will find many ways in which the trading of personal ideas, goods and services through social networking will flourish. I wonder how much the financial crisis, the globalisation and the changes in the job market have contributed to the popularity of social network based services. The vast digital networks contribute to enhancing the capacity of countries and cross-border alliances to respond to crises. This made possible handling the GFC in a way that was not possible in 1929. During The Great Depression people suffered in isolation for a long period before the economies managed to restore the pre-crisis levels of prosperity. Imagine how different that era would have been if they had Internet.

If this trend continues, how would the world look like in five or ten years? I tend to believe the pendulum would have to swing the other way from diminished consumption to increased demand. There is a limit for how much you can share the same things. Reusability is not addressing the demand for novelty. But if the underlying motive is to buy more with less money, the downside is the cultivation of a society with an even bigger consumerist appetite.

Pay for use only is a convenient way to deal with immediate financial uncertainty and postpone expensive decisions, but it is also creates the illusion of more disposable cash. This will compensate for the initial drop in demand for expensive goods in form of full ownership by creating demand for other services that can be consumed frequently but require no big commitment, such as travel, entertainment and fashion. For instance, once the new pay for use system will become an establish business model, the number of cars on the road will keep growing through big businesses owning large car fleets and manage them with a sophisticated scheduling and mapping system that combines renting with other innovative related services.

In the end, what appears to be a cheap way of buying the pleasure with less effort, but no ownership, it may be a very expensive price to pay in the future. It is a deal that may haunt next generations of renters because it creates even more uncertainty. There will be fewer owners, but those who own these assets will amass fortunes by charging large number of renters a pay-per-use transaction fee. The next generation of renters will not be able to go back to full ownership because they will have acquired the taste of a pleasure driven life style and it will have no means to purchase outright the cars or other similar assets because they will be deemed to be too expensive to afford buying them.

A glitch in the future social system will cause a great deal of stress to people who have no plan B. It is very difficult to estimate the impact on the psyche of a population with limited or no ownership. Will it diminish the peoples’ sense of responsibility? Will it propagate a culture of superficial consumerism, work for immediate pleasure?

This superficial consumption practiced through cheering social networks may be a Faustian deal in which a temporary sense of security is purchased to avoiding the pain of long term commitment and the hardship it brings with it only to bring an irreconcilable regret later on.

The owners of the social networks will stand to benefit even more from those who make up the network. But this is another story.