Bugger Social Media: Houses Are Better

If you want to understand the value of things, you’re probably better off buying a house than doing something silly, like studying economics. The price of both educational journeys is about the same - assuming four years of university fees, living expenses and lost income - and you’ll have a house at the end, which is worth something.

But it won’t be worth the price you paid for it. Look through the insurance documents, and you’ll see a little estimate called the rebuild cost - it’s what your insurer will pay out if your house burns down. It’ll be about 50-70% of the purchase price in the reasonable parts of northern Europe, much less in the popular parts where the main thing you’re buying is the location, not the house!

So important is location that similar houses can vary enormously in price, even if they’re not very far apart. Most readers will have noticed, for instance, that property in a swanky part of a city is worth more than a virtually identical property in a crappier part. But what people seem to forget is that swanky and crappy are subjective and transient.

Most of London, for example, used to be so crappy that people who bought its dirt-cheap houses in the seventies made an absolute fortune on them by the early noughties. By then, the city had become the capital of Cool Britannia, and Starbucks had started bemusing locals with weird beverages and Italian breads. But most of everything else was the same - the streets were still filthy, we got around on the same buses, children went to the same schools their parents did, yet houses older than Margaret Thatcher exploded in price.

Here’s the thing about real estate: the part of its value that’s attributable to location can increase massively due to nothing more than that location’s popularity, but the part that's attributable to the house itself is limited to the costs of materials, logistics and labour. That means your cost of disaster recovery - rebuilding - doesn’t fluctuate all that much. You can earn massive amounts of capital through the location becoming more valuable without incurring anything like an equivalent amount of risk.

Not so in digital real estate. Many people were around during the early era of the social web and built strong presences by virtue of nothing more than having been on it early. We were essentially London house buyers in the seventies - social media became popular and we just happened to already be there. For the last several years, however, algorithms have been favouring us less and less because the types of engagement we generate don’t meet modern social platforms’ advertising objectives.

I’m bitter about that, but I do understand. In the early days, social media had a relatively small user base, and growth came almost entirely from network effects. You were literally sat down by a friend and shown how to sign up to Facebook, then you sat down with other friends to show them, and so on. That fostered a very personal kind of engagement, and even those of us who started writing things for a wider audience kept it (mostly) to a core group of a few thousand.

But engagement on the scale of thousands won’t grow a social platform into the advertising behemoth its investors intended. So, once each platform reaches a certain critical mass, it pivots towards very shareable, mass-appeal content that can keep the attention of millions while ads are shown in between. Which is commercially fair, to be honest, but it effectively wipes out a chunk of early adopters.

What happens is that as the platform - your location - becomes more popular and valuable, the cost of rebuilding your presence, should the algorithm pivot away from you, increases massively because there’s so much more competition to be heard above the noise. What you gained in value by getting into the location early didn’t outpace your risk regarding disaster recovery.

And anyone with a considerable investment in their social media presence has a disaster risk hurtling towards them - social platforms are busy figuring out ways of dealing with AI, and not all of them will get it right. We’re already seeing total divergence in approaches - Medium has banned it outright, TikTok is moving towards heavier restrictions, Meta platforms are merely labelling it, and LinkedIn actively encourages users to generate it.

We have absolutely no idea which approach will work. Or which platforms will falter, or which users on the surviving platforms will gain or lose from the changes. Stick a finger in the air and take a guess, maybe?

Or buy a house.