TThe Network Effect Tax

Network effects became the most worshipped idea in business in the last twenty years for a defensible reason: networks really do get more valuable when more people use them. The first fax machine was useless. The hundred-millionth fax machine made fax indispensable. So far, so honest. The trouble started when companies noticed that, once a network is valuable enough, users cannot really leave, and that this captivity can be priced. We started building networks not to maximize user surplus but to maximize extraction. The polite name for this is the network effect. The accurate name is a tax.

Notice how the tax works in professional networking. LinkedIn does not charge most users money in the obvious way. It charges them attention, which it then resells. It also charges them in a subtler way: by degrading the experience of being a user until paying for a premium tier is the only way to get back to where free used to be. Recruiters pay handsomely to message users without the users' permission. Users pay handsomely to be allowed to apply for jobs without limits. The network has become an enclosed common, and the rent rises every year.

¶A common, badly enclosed

The professional network was originally a common, a thing held by no one and used by all. Professional communities, before platforms, were genuinely owned by their members. The chambers of commerce, the bar associations, the IIT alumni dinners, the Rotary clubs. None of them were perfect. Many were too narrow. But none of them charged a tax on every introduction or skimmed value out of every job referral.

When the platforms arrived, they did something subtle. They built better digital plumbing than the old commons had. They made it easier to look someone up, send a message, share an article. The members of the old commons quietly migrated to the new plumbing. The plumbing then enclosed the common. The members did not really notice because the plumbing was free. By the time anyone counted the cost, the cost was structural: half the professional class of the country now depends on a foreign-owned platform to find work, and pays a tax on every interaction.

¶How the tax compounds

The tax compounds in a few ways that are worth naming. First, switching cost, once your professional identity lives on a platform, leaving it means rebuilding the identity, the recommendations, the post history. Second, asymmetric search, recruiters can find you, but you cannot easily find recruiters, because the platform sells access to its directory in one direction. Third, distribution gating, even when you create good content, the algorithm decides how many people see it, and the algorithm answers to the platform, not to you. Fourth, the slow ruin of trust, when everybody is performing for the platform, the signals become noisier and the platform becomes less useful, which justifies more paid features to restore the signal.

The cumulative effect is that the network you depend on is the network that depends on extracting from you. This is not a moral indictment of the platforms; they are doing what businesses do. It is a clear-eyed observation that the professional class has accepted a tax that does not have to exist.

¶A community is not a marketplace

The alternative is not "build a better platform." That is the trap. The alternative is to remember that a community is not a marketplace. A marketplace optimizes for transactions: match buyer and seller, take a cut, repeat. A community optimizes for relationships: get the right people in the right rooms, give them shared norms, watch what happens over years. The relationships produce transactions, but the community is not in the business of taxing them. The community is in the business of being healthy.

This sounds soft until you do the arithmetic. A healthy community of ten thousand professionals can produce, conservatively, a few thousand hires, dozens of new ventures, hundreds of partnerships every year, at almost zero direct cost. A marketplace platform of ten thousand users would book a fraction of that economic activity through its rails, the rest happens outside its walls anyway. The marketplace makes money by counting the transactions it touches. The community makes lives better by not counting them.

¶What it costs to refuse the tax

Refusing the tax has a price. You have to charge members directly, modestly, for membership. You have to be patient enough to grow with the right people instead of every available person. You have to refuse advertising even when advertising would be easier. You have to build the dull infrastructure, calendars, light directories, simple ways to introduce two people, and stop there. You have to resist the temptation to "scale" past the point where the community is healthy.

The price sounds high, but it isn't, because the alternative, building yet another extractive platform, does not produce the outcomes professionals actually want. The point of being in a professional community is not to be impressed by its size. It is to come out of three years inside it with better friends, better work, and better judgement than you would have had alone.

¶The Indian opportunity

India has, in the last decade, built some of the world's most consequential public infrastructure: UPI, Aadhaar, ONDC, DigiLocker. The instinct has been right, strip out the rent that intermediaries were collecting, give the public the rails directly. The same instinct, applied to professional networks, would be transformative. A national community of professionals, designed as a commons, operated like the rails, governed by its members, taxed by nobody, that is the unbuilt piece. Bharath.CLUB is one attempt at that piece. There will be others. The goal is not to win; the goal is to end the tax.