Self Sourcing

Business on the web these days is a precarious place. Never in history have such large companies relied on little else than popularity as a competitive advantage. Although original success may be the product of ingenuity, elegance and appeal, once subscribership reaches a critical mass, success is mostly a matter of consumer participation. When a company’s primary offering is community access, such as online social networks, this precariousness becomes very stark.

In the past, few stakeholders of any company would invest if they were aware that the company may prosper or whither on the whim of a user population. Viable choices with little differentiation are everywhere, so classic barriers to enter markets no longer apply. There are no such things as reliable monopolies on the web. Today, false faith in the past notion of stability has prompted investors to infuse these companies with tons of cash.

Of course, these companies, while they remain on top are close to impossible to out-market. Their competitors have little hope in taking them down.  This was the case when Ask, a rival of Google, ran their “The Algorithm Rocks” campaign. Instead of pulling market share away from Google, Ask managed to bolster Google’s own name recognition. Randall Stross points out in his book Planet Google that “three months after the [Ask] campaign was launched, survey results…showed that most members of the general public…assumed that the “we” [in the Ask campaign] referred to Google.”

Prom Queen companies such as Google do not need to fear their competitors. They are practically invincible due to their integration into the culture of a population. Their names become verbs in the lexicon of a society and they reshape the interactions of entire communities. So, they are extremely difficult to unseat. Microsoft, the king of marketing, will have a very tough time with the 2009 product launch of Bing. Microsoft marketing paradigm of bundling products is growing weaker as the market moves away from the operating system to the web browser as a platform for applications. Without OS bundling, Microsoft’s marketing strategy based on incrementally better search is extremely weak, just as weak as Ask.com.

As ineffective as competition is at unseating Prom Queen products, they can be felled rapidly by their own constituency. A simple technological omission or exclusionary policy can bring a Social Networking company down like a house of cards. This was the fate for most of the largest companies that originated these new Social Media enterprises. Friendster was diminished by their user-base when they started to exclude certain users from participation. Napster was virtually regulated out of existence.

Change and restriction are an extremely dangerous business for a companies on top and yet many feel they need to continually innovate to keep their rank. Equating change with success is the fallacy that Craig Newmark in the least elegant way, has proven with Craig’s List. Craig’s List is a graphic designer’s nightmare. It is a graphical eyesore that has refused to use any new interface technology available for the last 10 years. Yet it remains the top site for classified ads in the country. Craig’s List would never survive if it was introduced today, but it is a Prom Queen product and it’s popularity will keep it on top as long and it doesn’t betray, exclude or alienate its constituency.

For the established front runners like Craig’s List, change and innovation are necessary only behind the scenes. Innovation should be quiet, subtle, effective and offered as incremental additions to the current user experience.  Any drastic change which unseats the original success of the product will be its undoing.

This was the case with a Prom Queen product called Lotus 123. In the 1980s and 1990s. Lotus 123 was the preeminent spreadsheet software. It’s only real competition was Microsoft’s Excel, which was forced onto the market as a virtual ripoff of Lotus 123 which was bundled with Microsoft Windows as part of Microsoft Office and given away for free on new computers.

Even with Microsoft giving the product away for free, Lotus 123 continued to hold market share until 1997 when Lotus (owned by IBM) made a catastrophic mistake. In order to bring 1-2-3 up to technical standards, the code needed to be rewritten for 32 bit processors which were becoming ubiquitous in the market. Lotus rewrote the entire code and relaunched the product. During the upgrade, the developers took the opportunity to also change the user relationship with the software including more powerful coding choices like LotusScript (a visual Basic derivative) and navigation that relied less on the keyboard and more on the mouse.

Instead of offering these changes as alternative features to the product, the designers buried the original user experience. Millions of users who had memorized keyboard shortcuts and the simple-to-use 1-2-3 macro language were all of the sudden given an alien product that they had to relearn. Now the choice to purchase an upgrade of 1-2-3 no longer seemed desirable next to Microsoft Excel, a free product already installed on their computers that managed the same task.

In the case of Lotus, the decision to innovate at the expense of the paradigm they had created, reduced their market share from industry leader to under 10% and then eventually to less than 3%.  Similar to the fate of Friendster , Lotus blatantly ignored the loyalty of their user base. Lotus designers were out of touch with their own fans and it cost them their market.

So what does a Prom Queen product company do when innovation is necessary. Even sites that seem to be motionless are constantly engaged in quality assurance and addressing the concerns of their constituency. These incremental changes mostly go unnoticed but are critical to maintaining a status quo that was formed by the site itself.

The best way to innovate is slowly by testing the market. Companies such as Google do not redesign their software UI and hope that their customers will embrace the change. Instead, they offer their latest interfaces as an option. Customers are not obligated to make any changes. Next, Google watches and tracks the success of the innovation. If a critical portion of the community adopts the change, they can safely pull the plug on the old interface. This works much better then the New Coke approach to upgrading software where you abruptly switch your formula. Coca-Cola was smart enough to bring back the original as soon as they realized their mistake. However, on-line businesses must be able to react faster than soft drink companies.

Perhaps the biggest lesson in the Prom Queen business is AOL. Nicolas Carlson of The Business Insider rightly points out that “AOL used to be a Social Network long before the term was even coined.” They may not have been aware of what could be done with such a large network but they were able to use critical mass to successfully bring Instant Messaging to the consumer market with AIM. This could not be accomplished without an already established massive community.

AOL managed to make every mistake it could as a Prom Queen. The company had locked itself into the web service market long after content and bandwidth increases ruled out the need for anything but the open internet. Yet, even with the web available for free beyond the paid subscription of AOL, users continued to stay with AOL. Ease of use and loyalty were enough to keep the user base committed. All AOL had to do was change the business model of AOL without changing the services it was offering it’s customers. The company already knew that it could roll out new technologies with massive adoption because it had the largest user base. Instead, AOL changed it’s browser, changed it’s subscription model, let it’s user tools languish and resigned itself to sit back and watch as Yahoo and others increased it’s market share by offering a similar AOL experience.

To this day, AOL still brings a reasonable revenue stream to Yahoo through a user base of almost 30 million users. Years ago they lost their title as Prom Queen but they continue to have  a formidable following. This is the case with MySpace, Friendster, Lotus 123 and even Napster. These leading products fell because they failed their constituency. Now they must enter a new chapter in their lives, the niche market and specialization, which, after all, is not the worst a consolation prize.

- Marc Dreyfus