Living Company vs One Hit Wonder

In his book ‘The Living Company’, the author Arie de Geus points out that the average life span for a multi-national company (Fortune 500 or its equivalent) is between 40 and 50 years. For companies in general, it’s a massive 12.5 years. In comparison, the average for human beings is 75 years, suggesting we do a better job of living our lives than we do running companies… Not really a fair comparison given that, currently, it is not legal to acquire, merge or break up human beings.

Can Web 2.0 start-ups become living companies?

When MySpace was acquired in July 2005 for nearly $600 million I remember wondering what exactly was NewsCorp buying – a company or a fad, more akin to buying the rights to a movie that will be hot property (and high revenue, hopefully) for a limited period of time. Now, a New York Times blog has articulated the lifespan of a social networking site:

¨They inevitably self destruct because sooner or later using it will stop being fun and start being embarrassing.¨

It’s an interesting statement and makes you wonder if Facebook, having turned down a $1 billion offer from Yahoo in 2006, risks ending up with the 1p box (comparing acquisitions to the UK show ‘Deal or No Deal‘). The New York Times references a great article by Cory Doctorow on Information Week that nicely sums up the challenge of longevity for social networking sites:

¨It’s socially awkward to refuse to add someone to your friends list — but removing someone from your friend-list is practically a declaration of war. The least-awkward way to get back to a friends list with nothing but friends on it is to reboot: create a new identity on a new system … Once that happens, poof, away you go — and Facebook joins SixDegrees, Friendster and their pals on the scrapheap of net.history¨

I love that quote because it goes against the assumption being made by techies that we don’t want to keep creating new profiles on different social networking sites and therefore need a ‘standard’ to integrate them all (see: OpenSocial). Most strategy and management books will tell you it easier (and more successful) to kill something and create from new than it is to change an established business/process/product/whatever, despite the hassle involved in starting from scratch all over again. People experience the same when moving house – do you seamlessly migrate all of your belongings or do you have a bit of a clean-out in the process?

So what will Facebook be worth in 4 years time? (The duration of the advertising deal that was part of Microsoft’s $240 million investment for a 1.6% stake.) I think it is a mistake to assume the value will be higher then that it is today. Some things just aren’t built to last…

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Filed in the Library under: Social Networks

Technorati tags: Web 2.0; Social Networks; Social Networking ; Facebook

Gifts vs Markets

“Strange things happen when a gift economy and a market economy collide”

(Peter Lyman, Political Scientist, as quoted in The Social Life of Information, published 2002)

There’s been a great debate over Jason Calacanis’s offer to pay Digg’s top contributors if they defect over to Netscape to build a similar service in return for payment. Kevin Rose from Digg responded and Jason argued back. Nicholas Carr wrote about it, siding with the monetary outcome. Yochai Benkler provides a balanced response. When describing why introducing monetary reward breaks down peer-produced systems, Yochai makes the comment:

Adding money alters the overall relationship. It makes some people “professionals,” and renders other participants, “suckers.”

The challenge facing sites such as Digg is that the relationship is constantly in danger of being altered in just that way. If the owners decide to sell up and cash in on the site’s success, all participants become monetary “suckers”. It’s unlikely to be an issue when the site’s value is generated by a service that benefits all participants, such as Flickr (everyone gains from being able to store and share photos), Deli.cio.us (ditto for storing and sharing bookmarks), and YouTube (ditto for storing and sharing video). But when value is dependent on altruistic reasons, the relationship is subtly different. What do participants gain for promoting links on Digg? The system works because it is operating as a gift economy, but it is being run by a commercial enterprise in a market economy. The owners could convert the gift into money at any time – winner takes all, participants receive nothing. I think that is the nerve that Jason Calacanis has touched.

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Filed on site under: Internet Economics

One long tail

In case you haven’t already heard or read about it, in 2004 Chrs Anderson (editor of Wired magazine) wrote an article describing a concept he called ‘The Long Tail’. The idea hit a nerve and now has a blog of its own and a book is in the works (due out in May).

Here’s a quick summary describing what the long tail is all about:

It started with a question: “What percentage of the top 10,000 titles in any online media store will rent or sell at least once a month?” Most people answer 20%, applying the 80:20 rule (20% of products will generate 80% of the sales). The correct answer is 99%. Online stores are challenging traditional market theories – they have unlimited shelf-space so are able to offer the full range of products and hyperlinks enable buyers to connect seemingly unrelated items together through purchase recommendations made by other buyers – the hit and the miss are put on equal footing.

Chris Anderson disovered that, for example, the average Barnes & Noble book store stocks approximately 130,000 titles. More than 50% of Amazon’s book sales come from outside its top 130,000 titles. In other words, the market for books not even sold in the average book store is larger than the market for those books that are. I’d recommend reading the article (if you haven’t already) and blog for a more detailed description.

Today The Times published the top 50 best selling books of 2005 and I could not resist creating a chart from the numbers to see what sort of curve was produced.

Begin drum roll…

Introducing one long tail:

🙂 And that’s just from the top 50 books. Imagine what it would look like if you stretched it across the entire range of books sold in 2005.

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Post filed under: growth lines