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Why The Current Crop of Social Networks Can Not Survive

Posted: March 5th, 2014 | Author: | Filed under: Companies, Facebook, Google | Tags: , , , , , | No Comments »

While the current group of social networks are extremely popular and appear wildly unassailable, it is my assertion that they are eminently fallable.  Over the past year, it has become obvious that they are having difficulty attracting users.  Facebook needs to grow by purchasing smaller companies for ever increasing amounts of money.  Google can’t really build a critical mass of users around it’s offering even though it is technically excellent.  Even with Twitter, the most non-social of the social networks, there is trouble attracting new users while implementing features to increase their revenue streams.

Arguably, one could claim that as everyone joins the network, there aren’t additional people to add, this is the theory of saturation.  While Facebook tries to assert that their daily active users is huge, and people are spending more time than ever logged in to facebook, how many of those actives are just people checking their messages?  Or have facebook set up on their mobile and are technically logged in all day.  This is a fantasy, people aren’t really using these services as much as they would have you believe.

Originally the promise of social networking was that people who we knew, and even more compelling, people that we don’t really know would create excellent and relevant content, thereby attracting even more people who would create great content.  This would create the virtuous cycle of content creation and given the user growth would make the platform lucrative in it’s advertising reach.  This is all known, what I believe everyone is currently ignoring in bubble, unicorn herd fashion, is that the cycle has been severely weakened, and their revenue models are broken.

Chicago: bubble house

What is ironic is that it has been weakened by the very thing that has made such scale on the internet viable: The desire of advertisers to pay for access to the social users.

It is a scenario that plays out in every market everywhere.  Initially someone produces something of value, and the market forms around that.  As the product evolves, the producer can easily see what works, as far as encouraging margin and price growth, and what doesn’t work, what causes price and margin decrease.

Most recently we have seen this occur in the PC market.  We are now to the point where vendors are completely optimizing on a single dimension, price.  Computer buyers ( obviously except those who purchase macs ) have spoken with their dollars, and their dollars want the best value for money.  Hence, netbooks, and $300 laptops loaded to the gills with shizware.  While it is shocking that people will accept this, this is what the consumer has chosen.

The social space works the same way.  The users of the social product, gmail, facebook, google search, etc… are the product, and the advertisers are the customer.  At first, users were drawn to the utility and functionality of the services.  In Facebook’s case, interestingly, the initial value proposition was that one could have a private relationship out of the view of the internet with their friends.  There was originally no danger that their content would appear to anyone for whom they had decided it shouldn’t.

As time has continued and these services have attained what they believe is a critical mass of users, the impetus for them to improve the service and protect their users’ privacy or to provide real value to the users diminished.  The incremental income for each new user was less than could be made by increasing the amount that the advertisers were willing to pay.  This has been accomplished either increasing, or inventing new areas in which to deliver ads, I.E. the facebook feed, paper, etc… In effect allowing the service to sell more inventory and spam their internal user base.  Or taking content that was originally private, but could be used to deliver ads, and making it public.  I won’t even start on the morality of the latter, but they have no choice, a free product at internet scale can not serve two masters, but it has to.

As anecdotal evidence, try to remember the last time you saw something interesting in the facebook feed, something that really grabbed you in a meaningful way. If you are like me, you can’t really ever remember anything really valuable that you’ve seen in the feed.

In actuality, the feed is built, designed, and optimized to deliver ads, not to deliver content of the highest quality to it’s users.  In fact, the deeper the quality content is buried, the more ads you have to wade through to find it, thereby increasing the services’ revenue.

What all of this has resulted in, is a number of once useful services, that have thoroughly optimized themselves to deliver ads, and have intrinsically lost their original value to the users.  This is what killed myspace, friendster, etc… This will ultimately kill Google ( albeit more slowly ), Facebook, and probably ultimately Twitter.

The reason the current model of social networks is untenable is that they are all designed around ads.  None of them, at least the “big successful” ones are designed around users paying, and optimizing around value for the paying user.  This will cause the end of the great social free ad-subsidized internet bubble at some point.

The reason I suggest that it will kill Google more slowly, if at all, is that Google obviously realizes that it’s current revenue model is untenable.  They are aggressively seeking out real value for money products to which they can transition when the ad revenue model dries up and the users flee their free online services.  People are just bored with these sites, there is nothing on them.

The same thing has happened to television.  The reason people are “cord cutting” is because bundling is designed to deliver advertising, not value to the TV services’ customers.  People aren’t stupid forever, eventually they realize they are being hornswaggled, basically paying twice.  Once in their monthly bill, the second time with their time.  It is just a matter of when.


Google Should Voluntarily Break Itself Up AT&T Style

Posted: January 21st, 2012 | Author: | Filed under: AT&T, Companies, Facebook, Google, Management, Microsoft, Twitter | Tags: , , , , , , , , | No Comments »

The Bell Telephone system courtesy of thephonebooth.com

When Google added world plus social, at first I didn’t think there was much of a problem. I understood that since Twitter and Facebook limit the ways in which Google interacted with them, it wasn’t really possible for Google to offer truly social search. This cabal between Facebook and Twitter is quite obviously hugely damaging to Google’s future interests as a company. So I also supported the need for Google Plus.

However, as I have been thinking about it, most companies in the past have gotten into trouble, become anti-competitive, or foes of the free market under the banner of simply looking out for their business interests in responding to a threat. Inside most potential monopolies, the issue that crops up after smashing a formidable challenge is when to stop.

Google is promoting G+ as the bulk of its social search, G+ is completely unavoidable as you are using the search engine. This puts Facebook and Twitter at something of a disadvantage. They also promote YouTube in a similar in-your-face manner, putting Vimeo and other web video companies at a disadvantage.

It isn’t hard to imagine a world in which startups don’t even look at web video because YouTube is un-assailable. Similarly one could imagine, though it is more of a stretch, that eventually Facebook and Twitter would whither and die at the hands of Google Plus since there is really only one search engine, and the entire world uses it. That world would be ridiculously anti-competitive, and no one, including Google really wants to see that.

I believe that if Google had had its just desserts, Facebook and twitter would have given it unfettered access to their data, and Google Plus would have been unnecessary. But since they didn’t G+ is more than beneficial for Google’s survival, it is essential. The same thing could be said about YouTube and Google Music in the face of iTunes.

One could argue as well that Google hasn’t been very effective of late at controlling what is going on within the company. Clearly there is a massive amount of resource contention, and a general challenge in keeping everyone on the same page, and playing for the same team. In addition, there is the kind of limited thinking that prevents the company from disrupting its own business units. Microsoft had(has) this problem, so did IBM, and so did AT&T.

AT&T, however operated like a well oiled machine, they had no problem crushing all competition and effectively responding to all challengers. Google is just as innovative as AT&T used to be, they will similarly get through their management issues, in fact I think they are very near this point. Google getting through their effectiveness issues however, is exactly what bothers me; Once they become as effective as AT&T used to be, isn’t that where the government steps in?

So what I propose instead is that Google break itself into separate businesses voluntarily. One of the main rules of business today is never to let a competitor, or government, disrupt you. It is better, and more profitable to disrupt yourself. I would suggest to Google, for this reason, that now is a good time to do it.

I would imagine that Google would become 5 corporations, split along the lines of social, media, search, mobile, and advertising. This would see Google Plus, Reader, Gmail, Google Talk and Google Docs become the Google Social business. Google docs may initially seem like a strange product to call social, but the purpose of Google Docs is to collaborate on work. That is pretty social as far as I’m concerned, in fact, it is probably the most social that people are in general.

The media business would consist of YouTube, Google Music, Google TV, and the nascent Google Games. The search business is self explanatory. Mobile would be Android, but also Motorola with the new purchase. And Google advertising would be their display, print, and television advertising business. Each company could retain a small portion of ownership of the other company that it was dependent upon. For example, Google media might maintain a 5% to 10% stake in Google social such that they can be sure that their requests are heard and honored. All of the business would have a small share of the advertising business, but the total should not add up to more than 40% so that the advertising business could remain autonomous.

The resulting companies would end up becoming far more competitive and profitable than their corresponding business units, due primarily to the need for providing open APIs to the other businesses that need their services. In the process, these businesses would make these APIs available to other startups who could build off of Google’s services as a platform, driving further profitability and end user lock in.

This would in turn surround their competitors, who are still just a simple silo, and who would begin to run into anti-trust concerns themselves. The now ridiculously nimble Google, which could be known as the Googles, would have them surrounded.

As a single entity Google is vulnerable to the same diseases which have, in the past, felled their erstwhile competitors. As multiple independent profitable companies, the Googles could remain dominant for decades. This would be better for the industry as a whole because each Google business with public APIs would provide a platform for numerous job creating profitable startups. C’mon Google, do what is right for the market, and for your business. Don’t wait for the DOJ to hold a gun to your head like AT&T. Even with the government forcing the issue with AT&T, being broken into the baby bells seems to have worked out pretty well for them.