Social Networking: a Bubblecovery?

An interesting perspective on social media's economic impact:

...the social media bubble has played a very important role in the U.S.' post-2009 "bubblecovery" or bubble-driven economic recovery. The social media bubble has helped to create nearly 500,000 U.S. jobs in recent years (a very high percentage of newly-created jobs) and has helped to launch a housing and commercial real estate recovery in hard-hit San Francisco and parts of New York City. The social media bubble has contributed to an explosion in post-2009 entrepreneurial activity, with the number of startup incubators tripling from 2009 to 2011. The social media bubble is also important, because it has been one of the few glimmers of economic hope that many Americans have had in recent years, especially for young aspiring-professionals who see few other appealing career options (1, 2, 3).

The recent election cycle may have contributed to the expansion because politicians of all parties embraced social media as a vehicle for delivering their messages. It's a relatively easy task to influence one's vote (i.e. to "buy" a political preference) through online tracking and ad targeting because the vote is free for the person to give. A harder task would be to convince one to buy a product or service online when s/he has to part with real money. Even Zynga with its freemium business model is having trouble.

tags: distribution, cycle, social, networking, business, advertisement

A graph from a 1954 article by Ernest Jawetz in Annual Review of Medicine looks remarkably similar to the Gartner Hype Cycle "discovered" in 1995. Both graphs have an enthusiasm peak, a disappointment pit, and a productivity plateau (see below).

Gartner Hype Cycle (courtesy wikipedia.org)

With Twitter we are probably still in the early stages of the cycle (see Google Timeline snapshot):

tags: innovation, cycle, diffusion, pattern, theory, book, infrastructure, niche construction, constraint

Over the last month, Sony's massive multi-player game Free Realms attracted two million registrations:

John Smedley, president of Sony Online Entertainment in San Diego, said the game is scoring well with the intended audience of kids and families. About 75 precent of the players are under 17 and 46 percent are under 13.

The engine behind the success is the:

free-to-play business model pioneered in Asia, where players start playing for free and pay for virtual goods one at a time in micro-transactions.

Sony proactively took down the main barrier to early adoption:

Kids have been slow to adopt MMOs in the past because they don’t have credit cards to pay for subscription fees. But they can play this game for free and can buy Station currency cards to get virtual goods at five major retail chains: Best Buy, Blockbuster, Rite Aid, 7-Eleven and Target.

We can see how company have learned to cross "the chasm" by going beyond a typical free trial period. Now, the access to technology itself is, literally, free. Therefore, the main internet battle for consumer wallets shifted from acquisition to retention. It is no longer about entry costs, but, rather, about exit costs. That is, consumers can now easily cross the chasm in both directions (see the graph). The problem has shifted from how to get people adopt a technology, to how to prevent people from dis-adopting it.

Dictating the pace of innovation

Steve Jobs in a 2008 interview describes the benefits of owning an operating system:

"That allows us to innovate at a much faster rate than if we had to wait for Microsoft, like Dell and HP and everybody else does. I mean Vista took what -- seven or eight years? ...we can set our own priorities and look at things in a more holistic way from the point of view of the customer. It also means that we can take it and we can make a version of it to fit in the iPhone and the iPod.

We can clearly see Apple's advantage on the 10X diagram. In addition to it, the introduction of the AppStore enables Apple and its developers to run innovation cycles at breakneck speeds. Very few companies, if any, can match this.
Furthermore, with the newly acquired silicon design capabilities, Apple might be able to beat its hardware competitors at their own game.

Predictions for 2008: A massive data meltdown

http://www.news.com/8301-10784_3-9828570-7.html?tag=nefd.top
"You'll see a massive failure in a year," Bapat said at a dinner with reporters on Monday. "We are going to see a data center failure of that scale."

"That scale" referred to the problems caused by the worm created by Cornell grad student Robert Morris Jr. in 1988. His worm infected about 5 percent of the Unix boxes on the Internet, freaked people out, and helped jump-start the security industry.


On a more cheery note, Bapat and other Sun executives said that the IT industry is also on the verge of a construction boom that, if it happens, will lead to big orders for equipment for makers of servers, storage systems, and other data center equipment.

The typical life span of a data center is only about 10 to 12 years, said the Sun executives. Thus, a lot of those data centers built at the beginning of the dot-com era need to be rebuilt. Other companies like Facebook are expanding rapidly as well. (Sun CTO Greg Papadopoulos mentioned Facebook several times, so it sounds like maybe Sun is working with, or trying to work with, them. Just a thought.)

National labs and universities are also looking at new centers. Next year, one of the national labs has plans to build a data center that will take up 500,000 square feet and consume 50 megawatts. (Big data centers now take up 400,000 square feet and chew up 40 megawatts, Sun executives said.)

Looks like a great opportunity to inject new technologies and/or capture market share from the existing players.

Another angle: solar power. Some of those data centers will be equipped with autonomous power units. http://money.cnn.com/2007/10/03/technology/solar_servers.biz2/

http://news.com.com/Google+rises+at+Yahoos+expense/2100-1038_3-6178164.html?tag=nefd.top

Yahoo, founded in 1995, had a three-year head start on Google when it was launched as a human-created directory. Google has always relied on software spiders to crawl the Web and create its index. Hard as it is to believe now, Yahoo invested in Google early on and used its engine to power Yahoo search results until early 2004 when it began using its own search technology.

Google founders Larry Page and Sergey Brin were unsure what business model they would use when they started their business. After snubbing merger talks in 2001 with Overture, the first search provider to use ads, Google launched its own pay-per-click model in early 2002. Overture sued for patent infringement and the case was later settled. Yahoo acquired Overture in 2003.

Technology story very similar to IBM/Microsoft deal in the early 1980s. A dominant company outsources service that doesn't make money. Then a new business model is discovered that boosts the upstart. The lesson: check outsourced technology for potentially new business models, i.e. the ability of the component to become the foundation of a new system.

Yahoo was too early in its quest to become a media company. After ten years of development Internet-based content distribution business model has not materialized yet.