May 3, 2012
With the Facebook IPO just around the corner some people have started wondering if a “Facebook killer” might be lurking in the bushes and the new photo sharing website Pinterest has become the new darling. Well, maybe.
I got a message from an industry watcher today, Kenneth Wisnefski, social media expert and founder / CEO of WebiMax, that said Pinterest was up and coming and a threat to Facebook’s IPO, but I disagree. Here are some bullets from the email and my thoughts.
- I expect Facebook’s stock price will soar in the beginning of the trading session, however once investors look closely at their fundamentals they will realize that Facebook really lacks a solid revenue stream (90% of revenue stems from advertising).
- Facebook’s dependency on advertising revenue in addition to their vulnerability from smaller social media firms, like Pinterest, decreases my confidence in their long-term sustainable growth that we once expected.
- Pinterest’s ease of use makes it more attractive to small businesses and we have already seen small business marketers shift toward using Pinterest and divert away from Facebook. If this is sustained, consumers may gravitate toward Pinterest versus Facebook.
Well, then, here’s what I think.
- Advertising is not necessarily a bad business model. It’s done good things for the likes of Google but as more companies enter the space and become good at the model, the demand for ads will prove to be less elastic than the supply and we will see tightening in the market and a decrease in profitability for the model. Nonetheless, Facebook is early to the party and I believe their SEC filings make the point that they want to diversify so calling the business model a liability at this point is overblown.
- “Vulnerability from smaller social media firms”? This sounds like somebody is trying to repeal the law of gravity. It doesn’t work this way. Certainly markets are open to disruption and certainly small companies disrupt bigger ones. But for disruption to occur the disrupter has to demonstrate superior attributes in a market slightly adjacent to the disruptee. Salesforce disrupted Siebel not in CRM but in the delivery mechanism. I don’t see a sustainable difference between Pinterest and Facebook, especially since Facebook bought Instagram. I think Pinterest will be a niche player in photo sharing.
- Pinterest might have the ease of use thing down simply because there is less of it than there is of Facebook. When Salesforce started out with just four tabs they claimed ease of use and simplicity. But that doesn’t say anything about the richness of the product or the experience.
- There is also the issue of switching costs which most people take into account when they consider going with a rival. Facebook is a network and according to Metcalf’s law, networks are valuable because they have lots of connections. A new network by definition has fewer connections than an established one, which makes switching more problematic. Switching here gets you less not more and for the vast majority, Facebook’s network is a walled garden.
As I look at Pinterest I see a consumer site for sharing photos whereas Facebook has developed from those roots to a budding platform for doing real business and for hosting applications. This platform is what enables Facebook to look toward other revenue forms and what makes it a better business solution. So while Pinterest might very well be better than Facebook in some ways, to say it is superior or that it is a disrupter is to overstate the case. It is a mistake to think that better technology wins the day.
Time after time we see that the company in first and with greater marketing resources is the winner. If you doubt this, check out “The 22 Immutable Laws of Marketing” by Trout and Reiss. It was published in 1994 and while it shows some wear and tear, it still gets this idea right.
CRM vendors that have wondered about the necessity of porting their applications to the small screen (i.e. mobile) should take note of last week’s acquisition of Instagram by Facebook.
Instagram is the tip of a big iceberg and is perhaps a signal of yet another disruption in a disruption prone industry. It represents a big trend by emerging companies to build their applications first for the handheld device market and later for larger environments like laptops and conventional desktops. Remember when the laptop was a “small” device?
Mobile device uptake is driving demand for applications more suited to business like a flock of Angry Birds. And vendors that build first for the small platform find there are advantages to this.
I think this provides an interesting correlation with early PC era when mini-computer software companies moved their products to PCs. The ports were largely successful but they made the PC run like a mini-computer. But when we all saw the kinds of applications, the performance and the intuitiveness of PC native applications we all knew that ported solutions were merely a weigh station. I think the same thing is happening with the new generation of small and very powerful devices.
According to a story in the New York Times, http://nyti.ms/HH4e7u it’s not only the companies themselves that are ushering in this phenomenon but venture capital firms are also fanning the flames.
As a technology decision, going small makes perfect sense. Small means small in most conceivable ways. So why architect an app for a larger computer when you know you will be reducing its footprint when you attempt to cram it onto pocket devices? In many cases apps that are hits on the handheld will transition to the larger formats of more traditional devices and they can easily grow in the transition once the developers have a clearer understanding of customer likes.
Of course, a growing percentage of device centric applications have no real analog on larger devices. For instance, Foursquare, an app that enables people to let their social followers know where they are and what they are doing, absolutely requires a mobile device to give it context. Foursquare for the desktop would barely make sense and have to be re-imagined.
So a billion dollars for Instagram not only highlights the importance of mobile devices but it reveals many new niches. For example, the already mentioned venture capitalists already have another technology area to analyze and invest in. And device makers have greater incentive to be first to offer specific applications running on their infrastructures. Where it was once enough to offer internet access for first generation social networks like Twitter and Facebook, device vendors now need to ensure that these third party apps look completely at home on their platforms.
But there’s more. Tool vendors who offer cheap, fast ways to develop, deploy and ultimately port applications from device to device become essential to this play. That means, the VC’s will quickly need to zero in on the infrastructure that supports device app building.
And what does this mean for CRM? A year or two ago vendors realized they needed to scramble to get their applications running well on portable devices because users were demanding it. The mobile sales person is ditching the laptop or at least leaving it at the hotel and managing the day to day with a smartphone or tablet. The better networks and more affordable communications plans, longer battery life (compared to most laptops) open new application areas too.
I am told that one of the favorite tablet applications on the iPad for pharmaceutical sales people is YouTube. That’s right, because instead of trying to ramble through a 30 second pitch, the rep simply asks permission to show a short video. Video packs more information and holds attention. It’s also more passive for the viewer so it has a future in CRM and thus so do smart and inexpensive devices.
The only yellow flag I see is the monetization issue. How do you make money at this? With many applications available for free and most costing under five bucks, it’s hard, if you are a VC, to see how these emerging vendors might become the billion dollar success stories of the next decade. Facebook can only buy so many companies.
Finally, for a long time we’ve been attributing the success of Arab Spring and Occupy Wall Street to social media. And while there is no doubt that social was a big component of the success, we’ve overlooked mobile devices, which are inseparable. Increasingly, as social media spreads around the world, it is being driven by the affordability of mobile technology. Mobile might be just another form of computing we all use, but for a growing segment of the global population, it is the computer.
In a world of Big Data, you don’t need to fret about CRM going away. The back end becomes more, not less, important as analytics surges. Big Data is surging too because social networks and by extension the mobile devices that inhabit them are generating the avalanche of data that must be processed.
And here we can see the most efficient model taking shape. The mobile device is rather dumb compared to the big CRM system, but it is a vital link. It sends data to the mother ship and expects information back fast so that the user can leverage the knowledge it contains and drive faster decisions. Time to invest in faster networks.
On April 23, 1516 in the duchy of Bavaria (thank you Wikipedia), the Germans put a law on the books governing the purity of beer. The Reinheitsgebot stipulated that beer could be made of only three ingredients: water, malted barley and hops. That may have been the highpoint of European tinkering with technology through government fiat.
The low point for government technology tinkering might be another German law enacted in the last few years Verpixelungsrecht or the right to be pixilated. I got this nugget from Public Parts a book that takes on our various ideas about privacy in the modern world by Jeff Jarvis published last year by Simon and Schuster.
The right to be pixilated stems from Google’s efforts to map streets all over the world using cameras so that you can Google-up a street and see it. How cool? But the Germans have this thing about privacy and didn’t want anyone’s face captured for all posterity. So they came up with the right to be pixilated. What’s interesting, and what Jarvis makes very entertaining, is the contrast: the Germans’ favorite indoor sport, the sauna. Naked. Co-ed. Sauna. Go figure. At least no one gets pixilated.
All this is brought into sharp focus by the latest effort at hemming in Google and other Web properties for their privacy practices. In an article in today’s New York Times, it appears that Google’s upcoming changes to privacy rules are not up to snuff for the French, of all people! The French are not known for their saunas but…oh never mind.
According to the Times:
“… the French privacy agency, the National Commission for Computing and Civil Liberties, said in a letter to Larry Page, Google’s co-founder and chief executive, that the proposed policy was murky in the details of how the company would use private data.”
Privacy agency?
If I understand this right, Google takes a zillion pieces of data, strips out the identifying characteristics (let’s say they pixilate it, ok?) and then use analytics to look for patterns so that when you browse a page they can suggest ads.
Isn’t this just a big focus group masquerading as a science project masquerading as real work for politicians who can’t get their economy moving because they’re wedded to draconian economic ideas that were last tried by Diocletian?
Look, my name is Denis. For the first forty-odd years of my life, before people met me they assumed I was a girl because Dennis is the ‘correct’ spelling of my name. Every year the first day of school had a predictable little drama when the teacher read the roll. Let’s not go there.
Sometime in the late twentieth century something changed. Writers and actors (Lehane, Leary) with my spelling made enough of a dent in the culture to make having a single ‘n’ acceptable. Perhaps more importantly, we all began collecting and crunching enough data that even those who try to market on autopilot realized that I might like beer over white wine or whatever.
Let’s be clear. There is a big brother threat from all sorts of things in our culture, some driven by computer. For example, bank foreclosures accelerated by robo-signings and lost paper work, but no one thinks about this in a big brotherly fashion. Why? Just as Ayn Rand’s economics is fictional, so is Big Brother. We’re going to have to work harder to find those excessive intrusions on our privacy than reflexively flogging Google and Facebook.
So, all you Europeans in the sauna, if you want privacy, put your pants back on.
Peter C. Whybrow, M.D., is a neuro-psychiatrist and director of the Semel Institute for Neuorscience and Human Behavior at UCLA, or at least he was when he published American Mania: When More Is Not Enough in 2005. In the book he quotes numerous economic thinkers and writers from the last 300 years including Adam Smith (The Wealth of Nations) and Alexis de Tocqueville (Democracy in America) as he analyzes how we behave in modern business.
Whybrow’s book is definitely relevant today though it was researched just before the social explosion of the last half decade. But that perspective gives added weight to his observations of humans as social beings before we became economic actors.
Whybrow’s chief assertion is that Homo sapiens evolved on the savannah as highly social creatures living in small hierarchical groups that provided mutual security (both protection and food), emotional support and served as a repository of knowledge. The time between when we lived in those small societies and today is infinitesimal in evolutionary terms and thus, one of his conclusions is that the human being performing as an economic actor today is virtually no different intellectually or emotionally from our ancestors on the savannah.
One of the big differences today is our communications reach. Small groups of our ancestors were about the size of a soccer team or an army platoon and communication was face to face. Social media may hugely increase the size of one’s intimate community, but it does not change our social approaches or approaches to intimacy.
This is all highly important when figuring out optimal uses of these new technologies in business. To a high degree, businesses and individuals have very different reasons for approaching social media. Businesses see it as a nearly frictionless way to “meet” customers and possibly sell something. Regular people may just want to hang out and hook up. In other words individuals seek community and for many of the same reasons that our ancestors aggregated.
We all know that modern social communities enable people to compare notes about vendors, products and services as well as to provide support for many of the vendor conundrums customers face in the marketplace. Of course, people also approach the internet and its social communities in their new incarnations as Homo economicus but one should not assume that.
Given that slight misalignment of reasons for engaging in the social sphere, vendors are well advised to tread carefully when leveraging social communities for commerce. Two new books by respected thought leaders in the space offer their wisdom and advice for trading in this brave new world.
In The Like Economy: How Businesses Make Money with Facebook, Brian Carter presents a primer on marketing and selling through Facebook. While Carter does a good job covering the basics the feel of the book is like reading some marketing 101 treatise moved to social media. The assumption seems to be that this is a tool more or less expressly for business, all other considerations not withstanding. You can read self-help styled chapters like “FaceBucks: Five Ways Businesses Achieve Profits with Facebook” and “How Not to Fall on Your Face: Six Mistakes That Block Facebook Profitability”.
Carter’s approach is all business, which is fine, provided the reader has already understood that social media is not exclusively about marketing and sales and that people can turn you off like a light. Carter recommends many tactical things you can do to optimize your sales and marketing efforts but I would have preferred some nod to the need for listening to customers or sponsoring real community give and take that may not be directed toward buying the next shiny object but to answering questions about the current one. In other words blending in with the natives, so to speak.
A more rounded approach comes from Chris Brogan in Google+ for Business: How Google’s Social Network Changes Everything. At first glance, it’s funny that both authors seem to have a need to state in direct terms why the social network, which is their subject matter, is the first-best-and-only one for the assignment. Perhaps it is an artifact of the publisher the each uses, Que. While we’re at it, the cover designs aren’t that different either. But I digress.
What’s useful, to me, about Brogan’s effort is the more holistic approach he takes to commerce on the Web. Brogan starts at the beginning indirectly reminding us about some of our savannah heritage with sections like “Businesses Are Made of People, Connections Before the Sale” and How You Appear to Others.” Most important there’s a whole chapter on Circles, those aggregations of community members that have like reasons for being in some kind of a relationship with you to start.
There’s more too, like Chapter 8 “The ‘Warm’ Sell” with sections like “Attention is a Gift” and “Make It About Them”. I could go on but if I had my druthers Brogan’s approach, regardless of the social network I choose, would be my preferred way of getting the job done.
Like Carter book though, I would have appreciated it more if Brogan had managed to insert a bit more of community away from the sales process into his offering. In the future of Web commerce, I doubt companies will have one community for service and another for sales and marketing. It’s all becoming one and some of the best marketing can come from listening to and understanding a customer’s problems or issues especially if you can turn that issue into a need. Each book is missing a discussion of the new role of the community manager and a bevy of people whose job is to listen and administer the communities. Regardless of how frictionless this kind of commerce is, it does require work.
I think the more we regard the community as something with roots on a real savannah, the more successful we will be in the new cyber savannah.
“Day-to-day adult supervision is no longer needed.” So wrote Eric Schmidt CEO of Google, one of the most successful digital economy companies ever, in a Tweet today. When he was brought in by the founders, Larry Page and Sergey Brin to run things in 2001, Schmidt acquired that moniker in part because the founders were so young.
As has been typical in Internet related industries youth and a new way of looking at things has often been enough to launch iconic brands and mind-boggling wealth. Google may have been the poster child for youthful innovation but the industry is full of people from Bill Gates to Mark Zuckerberg who fit the mold.
So now what? Co-founder Page becomes CEO as well as president of products while co-founder Brin remains president of technology. The company is clobbering its numbers and despite a challenge from Facebook and continues to print money for its shareholders.
I do not understand why the shakeup occurred. According to Google this change will make communication channels cleaner but it’s hard to see how from outside. The trio appears to still be friends but perhaps a decade at the helm has sated Schmidt. Or possibly the two still youthful co-founders have a second act. But if that were the case, it is hard to believe they could not have acted from their previous positions as mere presidents. We may just have to watch as this company continues to evolve.
