Small Business Blog

This post is about free networking sites and not service sites.

Web 2.0 tools can be broken into two camps. Those which are free and those which are paid.

What makes Google, Ebay, Craigslist, and Referral Key different from Facebook, Linked In, MySpace, and Twitter?

The first group are examples of online services that may have free features, but the crux of their business is based on providing a service. These sites are different than free networking sites as there are actually services being rendered and therefore services being paid for. Even a site like Referral Key which is a business networking site for referral marketing, provides clear and distinct services. Generally, when people log off of Facebook, LinkedIn, or Twitter they don’t think, “Ah.. services rendered”. However, they can say the same for others: “Referral Key helped me generate some sales leads, purchasing Google ads helped attract some web traffic, I was able to sell my stereo on Ebay, found a new  employee on Craigslist…”

“Are free social and business networking sites such as Facebook and Twitter products or services?”

This question, while simple, has huge ramifications for how the public adopts social and business networking sites.

Economists, technocrats and investors are baffled, trying to understand the phenomenon of the online networking world. One particularly puzzling enigma is how the biggest site, MySpace, could fall off the map in a matter of months while Facebook could experience wild growth in the same short period of time. It would be naive to  focus on the mechanics and features of each site, not only can features be changed with a line of code, but modern marketing practicum tells us that individual features are not the most important factor in a brand’s success or failure.

The answer may be in whether these sites are products or services.

The difference between a product and a service

There are pages written on the differences between products and service but the primary difference is:

A product is tangible

A service is intangible

The rise and fall of networking sites isn’t that unpredictable. Perhaps, we’re just looking at it wrong.

We may be quick to assume that networking sites are services, primarily because we cannot feel or touch them. And yet, if you were to answer the same question about Microsoft Word, you would probably call it a product not a service. Essentially, social and business networking sites are free cyber-real-estate. They prvide you space to place ideas and media without having to buy a domain. If we look at them as a product, albeit a free product, we can begin to understand the rise of sites like Facebook, Linked In, Twitter as well as the fall of sites like MySpace, Live Journal, and Friendster.

Let’s take a look at Twitter as product and examine its life-cycle:

Many of you may be familiar with Geoffrey A. Moore’s book “Crossing the Chasm”. Moore’s idea of product adoption is generally accepted as a blueprint for understanding how new technology products are adopted.

Innovators: These were the very first people to adopt Twitter. Friends of the company, risk takers, and industry bloggers; Innovators probably had to work harder to get Twitter to work for them. Very few people can claim to truly be a part of this group.

Early Adopters:   They were the first to use Twitter for business. These are the success stories to which so many advocates point. i.e. the pizza place that successfully promotes itself via Twitter.

Early Majority: This is where Twitter is right now. The majority of people using Twitter are part of the Early Majority. Twitter’s adoption by celebrities, news outlets, and retailers have all sped  the rate at which Twitter is ascending the Early Majority slope.

Late Majority:  Twitter has not reached the Late Majority yet. The late majority are the people who, after the majority of people have already tried and approved of a product/service decide to give it a shot. We all know that Twitter has some serious gains to make with teens. Ironically, teens are Twitter’s Late Majority market.

Laggards: Laggards are the last stop in Twitter’s life-cycle. They were the ones still buying Portable CD players at CVS long after everyone else had MP3 players.They will be the one’s signing up for Twitter when the rest of us are getting nostalgic about the days when we used Twitter.

Products inevitably reach the end of their cycle

Instead of attributing MySpace’s downfall to some unproven mechanical difference or a feature that Facebook has, it is much more practical to assume that MySpace reached the Late Majority of its life-cycle as Facebook was reaching their Early Majority. MySpace simply over-saturated their market of teens and young adults. While MySpace hit their apex, passing from the Early Majority to the Late Majority, Facebook took notice. Facebook, realizing that they too will reach a critical saturation point within the college market, decided to unhinge their jaws as wide as they could; opening their network to anyone in the general public who was willing to setup a free account.

Opening their network to everyone gave Facebook a larger hill to climb than MySpace and slowed their life cycle. Predictably, this will keep Facebook satiated for a longer period of time than MySpace. This has two consequences.

• Facebook cannot circumvent the laws of economics. The giant will inevitably get hungry again. At some point they will pass into the Late Majority if they haven’t already and it will be unclear who they’ll be able to open their market to.
• When a product is for “everyone” it will eventually touch no one. Long term branding strategies are all about exclusivity. It is only a matter of time that a product which is for “everyone” will lose traction to a competitor with a branding message that their product is for “someone”.

The social media conundrum. How social media is different and the implications of a free advertising.

“Free” is the keyword. Traditionally, it could take a product years or even decades to pass through the entire cycle. But since sites like MySpace, Linked In, and Facebook are “free” for anyone, they’ve essentially put their business model into hyper-speed. Easy-up - Easy-down.

In the beginning:

Zero restrictions, open networking, and unadultereated opportunities for promotion (of products or one’s self) are the draw of new networking sites. This is the feul that turns small networks into behemoths. The networking free-for-all is the main source of buzz for large free networking sites. It is the hallmark of the Innovator/Early Adopter phase. The first pizza place on Twitter to be followed by their entire neighborhood probably experienced incredible value.

Nearing the Apex:

The same open networking strategy that originally propelled the site becomes its enemy as it begins to crest the Early Majority phase. Networking anarchy threatens to push the site through the cycle at an unfavorable speed, devalue the brand, and ruin the user experience.

As more pizza places in New York begin promoting through Twitter, they will cannibalize their own platform. Only two outcomes are possible:

• Every pizza place gets an equal opportunity and the “noise” becomes over-bearing for the audience. The simple act of connecting with people becomes a source of discomfort and ultimately reflects poorly on Twitter.
• Or, restrictions are enacted which limit the ways in which the majority of pizza places can promote via Twitter, thereby giving the original pizza place an insurmountable advantage and disenfranchising the late-comers.

It is at about midway through the Early Majority phase that sites put the brakes down in the form of user restrictions. They are then faced with the balancing act of managing network quality with user expectations. A member may join because an influential blogger said, “Join Twitter, I have 10,000 followers and send 200 messages a day. It’s a great promotion tool, I tell everyone to sign up.” If the new user joins Twitter and everyone is already promoting something, they will be turned-off and won’t regularly return. Alternatively, Twitter can implement restrictions but, if the new user joins and are expecting to leverage Twitter in the same way other’s have, they are going to be dissappointed when they are only allowed to add a limited number of followers, send a limnited number of messages, and perform a limited amount of activity.

Ultimately, the user experience of an Early Adopter will be vastly different than the Early Majority. This explains poor retention as sites become more popular. The selling point, “You will have an audience” is unsustainable. For every Early Adopter that has 10,000 followers paying attention to them, their are 10,000 members who do not receive any attention. So either the value of a follower decreases or the majority of users will need to accept that they cannot have an equitable share of the podium no matter  how democratized their favorite blogger claims Twitter is.

“Free” is a business model with it’s own complications

‘Free’ is an unsustainable business model so it should come as no surprise that these sites are deadset on coming up with some type of value that’s worth paying for. Perhaps not so much for the immediate return but to give themselves a second shot at the life-cycle.

Tags: Business Networking, referral marketing

This entry was posted on Monday, October 26th, 2009 at 2:30 pm and is filed under Business Networking, referral marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.