the reflexions insider

(Image by nswlearnscope via Flickr)

Recently the ever-snarky tech/finance blog Silicon Alley Insider held a contest to propose how to fix what they called Digg.com’s “broken business model” (”broken” because Digg lost $2M on $6.4M in revenue, a staggering loss by any standard). The winner would have his or her proposal (and resume) delivered personally to Digg founder Kevin Rose and CEO Jay Adelson. The winner was Keith Cowing, an MBA student at Cornell, who suggested among other things that Digg generate revenue by selling sponsored posts on the home page and data to marketers about its users. Probably something Digg should consider but it’s hardly a revolutionary thought and not exactly the kind of model that will transform underperforming web 2.0 properties into revenue generators.

By and large the “web 2.0″ crop of business models has been disappointing. There are no shortage of examples. YouTube, purchased by Google for $1.65 billion, has a revenue model that’s “so secret, even Google doesn’t know what it is.” While Google doesn’t publish financial information about YouTube, its impact on revenue has been [...]

Consider this: Twitter didn’t exist three years ago. YouTube didn’t exist four years ago. And Facebook, the second most-visited website in the world on Christmas Day, 2008 (after Google), was started as a half-serious side project by Mark Zuckerberg in his dorm room less than five years ago. All of these websites were effectively created after the (now oft reviled) term “Web 2.0″ was coined by Tim O’Reilly and John Battelle in 2004.

By any standard, profitable or not, these are enormous web properties. And the timeline above demonstrates how rapidly the web landscape shifts and how fickle are its users.

Below I’ve identified several trends that I think will make an impact over the coming months and into 2010. This isn’t meant to be a “prediction” list per se, but an attempt at identifying how the current dynamics of social media will play out. Enjoy.

Twitter will launch a commercial subscription service that will generate revenue by letting companies use the platform to connect with customers. It will receive additional buyout offers but will remain independent for at least another year. I believe its investors are convinced that it’s worth more than their potential suitors think. And I believe they’re right. But having zero revenue is not sustainable.
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When it comes to fragmentation of audiences, markets, and media, the trend line is clear: we are collectively becoming not a single audience of billions but a million audiences of thousands, hundreds, or even one.

It’s a fascinating long term side-effect of media decentralization that’s been predicted for decades by media visionaries like Marshall McLuhan (pictured right) and, dare I say, Andy Warhol. The one-to-many paradigm of network television and weekly newsmagazines understandably has a homogenizing effect, both in reinforcing a common identity and in shaping public opinion. The many-to-many model of social media and its various manifestations (blogs, wikis, social bookmarks) has been turning this model upside-down.

Of course marketers have been using this to their advantage for years, from the highly targeted narrowcasting as seen in political campaigns to highly personalized direct mail. But the social web is both responding to and further cultivating this fragmentation.

Social platforms like Ning have emerged to provide ad hoc and on-demand networks meant to service everything from 5-person knitting clubs to Jay Z’s millions of fans. The single-network solutions like MySpace and Facebook have been incredibly powerful in generating public awareness of social networks. But they have discovered that the users of today’s web are a fickle bunch, [...]

If the web of today was the music industry of the 1960’s and if memes were bands, then social networking would be The Beatles. And startups have been chasing after the next killer social networking app like so many crazed schoolgirls.

Tech axiom #1: innovation and perceived innovation are not always the same.

What’s difficult about analyzing social applications and to what extent they will actually change the landscape of the web is discerning the real innovation from the me-too-isms that too often pervade the business plans of web startups. And some of the biggest social networking sites are essentially a rehash of similar concepts from an earlier web. I’m not really sure why MySpace is that much different from Geocities circa 1995 with an embedded mp3 player but maybe I’m missing something.

Tech axiom #2: the most innovative companies are not always the most successful (see also: Xerox PARC).

Despite what some social web evangelists might have us believe, these tools will not fundamentally alter the dynamics of human social behavior. Instead the most successful applications will model and improve upon those dynamics. Finding a good doctor in the 21st century won’t be much different from the 20th or 19th centuries: simply put, you ask recommendations from people you trust. [...]