#4 The Role of Internet in GME saga

Networked Protests, Online Healers vs. Dealers

GameStop stock price (GME) was worth around $6 in early September 2020. It bounced up to $18.36 on January 6, 2021 (the day of the Capitol riot). Then, it picked up pace to $43.03 by the 21st, and then just skyrocketed to $347.51 by the close of trading on 27th.

What happened here? There is certainly no shortage of takes: planned short squeeze, meme stock, bored people with Robinhood accounts, hedge fund hunger games - to name a few. These news stories are mostly accurate. But they do feel like proverbial “blind men feeling the elephant”.

Is there a real elephant? There is. It is the Internet1. Specifically, what it enables or doesn’t enable.

  1. Online networks are spontaneous and form fast, but their real world impact remains highly uncertain

    GameStop saga may have had a clear trigger: /r/WallStreetBets reddit forum. But once the meme got going, there was a malleability to the purpose. While there was /u/DeepFuckingValue on one side, who bought GameStop in 2019, and promoted his comeback thesis on YouTube, there were lot others who joined to just make a quick buck2.

    So when GameStop started descending down from stratosphere, while /u/DeepFuckingValue was willing to hold the line3, others ran toward the exits. The short sellers came back and reloaded their bets4. And the hullabaloo around the stock already seems like ages ago.

    That is the plight of modern day “networked protests” or “networked action”. Internet enables fast and spontaneous networks, but they disband quickly at the first sign of resistance. “Organizing without organization” has its limits5, at least for now. Only occasionally, some of these memes spill into the real world with a considerable consequence, e.g. 2016 election outcome.

  2. We need more marketplaces, not attention economies

    Robinhood had a marketing pitch worthy of its legendary namesake at their launch in 2013: commission-free trading on a platform that has the common investor’s interests at heart. Yea, right! That façade cracked unequivocally6. Certainly when Citadel, buyer of their order flow, emerged as a buyer of Melvin Capital (the hedge fund that had to unwind its GME short bet). It isn’t entirely clear, to me at least, who is the real “Robinhood” here.

    Also, Robinhood supports attention economy. The users are the product, whose behavior surplus gets sold to buyers like Citadel as order flow. Jonathan Harris has written about attention economies in contrast to marketplaces as below7.

    On the Web, there are two main kinds of companies: marketplaces and attention economies.

    Marketplaces operate by connecting one group of people to another group of people and allowing them to conduct a transaction, of which they take a cut. Etsy connects buyers to sellers; Kickstarter connects creators to backers; Airbnb connects travelers to hosts; OkCupid connects daters to daters. Marketplace companies build tools to solve problems that exist in the world. At their best, they operate like healers — mixing up medicine to answer a need.

    Attention economies operate by convincing users to spend large amounts of time online, clicking many things, and viewing many ads. These companies often masquerade as “communication tools” that help people “connect”. But in attention economies, most of the “connecting” happens alone, while you’re staring at a screen, and it often leaves you feeling empty. Attention economy companies operate less like healers and more like dealers — creating addictive experiences to keep people hooked.

    An online marketplace, which offers and incentivizes “buy and hold” type of investments to common investors, is what we actually need. We need more “healers”, less “dealers”.