One of the most overused phrases for the startup trying to challenge the behemoth of an incumbent, is that the incumbent is too large, and that the startup can make quick decisions without the bureaucracy. I’ve used it in many meetings, and the more experienced I become, I realize how insignificant it is as a tactical advantage. Until you get to that point we call critical mass, you haven’t begun to become part of the conversation. But it’s interesting to see it play out with those companies that have hit the mainstream, and are within striking distance of potentially becoming king of the hill.
We’ve seen it with Wikipedia rendering Encyclopedia Britannica meaningless. We’ve also seen it with Google stealing the show as the gateway to the Internet, instead of Yahoo. We’ve also seen more recently Facebook taking the number 1 slot from MySpace, a company, that captured the throne from Friendster. It is certainly possible for the big companies to lose market share, especially in these days where we adopt new technology at an incredible pace. If you look at the adoption of the VCR versus the adoption rate of the DVD, you’ll see that we all adopt new technologies more rapidly than before. Moore’s Law seems to exist in the adoption of new technology. One of the things that irks me is when a company is crowned as the _________ killer because they are cool, and some early adopter techie wants to champion/evangelize it. Almost always, the so-called “killer” never pans out.
There are several commonalities that exist between all these guys that lost to the new rising star.
You have to be open…. to an extent
AOL was the prime example of what we called a “walled garden”. They forced anyone who wanted to consume anything AOL to pay the monthly subscriber fee. This was a cash cow for AOL. They received reoccurring revenue, if you wanted to connect to other folks, they had to subscribe as well (network effects), and AOL received great word of mouth marketing. It’s amazing. At the time, many people thought that the only way to get on the Internet was through AOL! Then, dial-up was supplanted by broadband, and everyone was able to have access to Internet Explorer, and get access to everything the Internet had to offer, for zero charge. I’d imagine that if AOL would have realized how the proliferation of broadband would have impacted their business and shift for the new Internet, they may have still been on top.
MySpace beat Friendster for several reason, one being the fact that Friendster had severe scaling issues, but I think the most important fact that everyone attributes to the initial success of MySpace was the first platform for the explosion of widgets, especially YouTube widgets that enabled everyone to take bits and pieces of the web and distribute it in so many ways. They were more open than Friendster, and MySpace enabled customization from an ecosystem of outside developers that created cool designs that enabled MySpace to become one of the first truly customizable sites out there. But MySpace was notorious for shutting down the competition, disabling widgets without warning, such as YouTube, Photobucket, and several others. It was a terrible PR move, and opened up the gates of opportunity for a rising star, Facebook, which blew the Internet open with the first open developmental platform for a social network. Facebook out-opened MySpace, and now we’re seeing right before our eyes, the crumble of MySpace. I can’t remember the last time I’ve heard of a major partnership with MySpace, and media outlets such as CNN are only mentioning Facebook partnerships and announcements.
Today, Techcrunch wrote about how the senior execs are leaving MySpace in droves, in a Yahoo-like fashion, and with the latest MySpace announcement being a co-branded credit card with a failing bank, Citibank. I don’t have too much confidence MySpace can rebound, especially after a lukewarm response to MySpace music, which was supposed to set the Internet music space on fire.
You have to acknowledge your competitor and make tactical moves to disarm them at all costs
Right now, Facebook is doing something that I haven’t seen all too often from the big companies, acknowledge the fact that these startups are threats, and evolve the core strategy of the company to adjust to the new Internet trends. Currently, Twitter and Friendfeed are fast risers in the real-time web, a seemingly exploding part of what the web has now become. It used to be that just early adopters wanted news and information faster and quicker over several platforms, but now it seems like everyone has compelling reasons to need this type of access. Google’s CEO, Eric Schmidt seems to dismiss the potential threat of Twitter when he says that Twitter is a waste of time and a over-glorified e-mail system. Fred Wilson, VC blogger extraordinaire and investor in Twitter, believes that the value of Twitter is increasing with every day and that he believes that the real time search and information discovery is going to generate economic rents to Twitter that we will see in the near future.
But, as I stated before in my previous blog post, Facebook has made significant moves that will stunt Twitter’s future growth. The Status API release was a major release, even with Nick O’Neil of Allfacebook stating that this was a Twitter-killer. Not too long ago, Facebook made a $500 million acquisition offer (equity) to Twitter (with the $15 billion preferred stock valuation), and was unsuccessful, and since then, it seems like every release is positioning Facebook to become the leader in real-time search, people search, and become the backbone of the social web. They are making a hardline stance against Twitter, and today’s press conference about the new design and focus of Facebook indicates that they refuse to have an upstart take away their relevance and significance. All too often, people have said that Twitter and Facebook are addressing two different demographics, but it reminds me how pundits and researchers used to say that Facebook users and MySpace users were completely different. Today’s release brings brands closer to Facebook, and makes it easier for people to enable 1-way conversations so people, organizations, and brands can better broadcast themselves on the Internet.
All in all, Facebook is making every single necessary step to position themselves for the future. Most large companies are unable to move as quickly to respond to growing trends, and it’s apparent that although Facebook’s CEO has been criticized for not producing enough revenue and a couple of media flops, Facebook has maintained an innovative culture, despite it’s continued massive growth.