Monthly Archives: January 2013

Content vs. Social – Why Content Always Wins

Right now, Google and Facebook are both trying to fill the same competitive space. They want to dominate the mindshare (and clickshare) of the average internet user, so that the user can do their searching, shopping, researching, and socializing all within the confines of one megasite. Both are coming at each other with different strengths.
Google has built much of the functionality that users need on the internet, and they’ve done it masterfully. Whereas before, I might have to pay for an e-mail address, or be bombarded by flashy banner ads, Gmail has given me a free, neat mailbox for only the price of some innocuous ads. They’ve created similarly valuable products in Gchat, Google Shopping, Google translate, Google Analytics. Google has become one of the internet’s richest companies while remaining largely free, innocuous, and indispensible to the average user.
Facebook has built a community of nearly one billion users. For those users in their teens, they have literally grown up on Facebook, and the rest of the users often have significant portions of their lives stored on Facebook servers. Google may have a great product that translates words for you, but Facebook has your family albums! (And your friends’ family albums, and their friends…) To kill your Facebook profile has been likened to virtual suicide.  But Facebook is now a public company, and they need to start building the content that will drive revenues and bring financial success.
I think of these companies as two sumo wrestlers, each fighting to push the other out of the ring. I simplify even further, and I label the wrestlers not by their names, but by what they represent. Google represents content: great products, great services, great value. Facebook represents social: The power of one billion people all in communication with each other on a similar platform. Which of these two forces would you choose in a battle for internet dominance?
As the web has grown and developed, we the users have seen the passage of sites, strategies, fads, etc. Amazon.com has gone from a bookstore, to failing mega-store, to a successful technology and retailing conglomerate.  Advertising dollars have leapt from your television set, to your desktop browser, to your mobile phone. The internet is still figuring out how to leverage the users’ desire to be social on the web. In an industry of upheaval, there is one thing that has remained constant: Great content is the consistent driver of successful websites.
Think Craigslist. The stubborn website has been virtually unchanged since it was launched, passing on all the internet fads that have come and gone. Yet it is far and away the dominant site for buying and selling things locally online. Without doing anything extra, Craigslist’s content—their product—has provided great value for the right price.
To become the ultimate destination on the internet, a company needs to have strong network effects and great content. But if you were to start with only one of those things, I would choose great content. Here are four reasons:
1.     Content maintains users
Every positive metric on the internet begins and ends with content. The number of users you get, the time they spend on the site, the number of friends they tell. Not many of us spend time looking at dull content, or using an inferior product. No sneaky business model or cute user interface or even a recommendation from a friend will keep us on a site with bad content.
2.     The internet is a free market, people will buy the best product
To be profitable on the internet is a challenge because of the constant change and virtually no barriers to entry. There are some high-profile examples of companies that struggle to earn revenue online (Twitter, NYTimes). And where it is not impossible to earn money online, the prices have certainly been driven down. Netflix offers unlimited movies for $8/month versus $4 per DVD at the rental store. In this environment of change and competition, even a network of 1 billion people is not enough to make users pay more than your product is worth. A sustained culture of being at the forefront of content innovation is what will continue to bring dollars in.
3.     Social growth has limits
All growth has limits, but it seems to me that a social website will be more sensitive to these limits. In business, growth is strength, and it is one of Facebook’s greatest strengths. But Facebook will reach the limits of its growth, weakening the company. While a content company can create new products to attract different customers (or the same customer to multiple products), social sites can not manufacture users. It seems they will be forced to turn to content to profit from their existing user base and maintain growth.
4.     Network effects are easier to build, assuming you start with great content.
Thousands of sites now incorporate some kind of Facebook-like functionality into their product. Perhaps a profile, a message board, and the ability to friend people. Sites that do well have fairly active communities as well: I think there is a lot of socializing within Pinterest; Netflix users share passionate reviews with each other. But sites that have lots of users and a social dimension to them don’t inherently maintain those users. Imagine if Pinterest started charging $20/month, or Netflix suffered from daily outages, the sense of community on that site would not be enough to save them.
Network effects are a great asset. But network effects are not solely begat from network effects. They begin with great content, and they fall apart with content that is second best. 

Let’s Get Started

I will start this blog with an exercise. One of my reasons for blogging is to exercise my ability (or lack of ability) to write faster. If you were here, you would see that this is not going so well so far. But, as in real exercise, I presume it comes with time.
I have a few other reasons. At the time of this post, I’ve been working in an IT consulting company for one and a half years. As with most of my jobs, I enjoy it. But I can see how easy it is for your mind to get quickly warped and stunted around the carrots and sticks in a corporate environment. One of the worst things I can within my company is miss filling out my timesheet. To me, that borders on the immoral because you are determining raises and promotions based on a silly number that is the same every week.
I am writing slow again.
In a way, these are the things I want to write about. I have no focus for this blog. I like economics, incentives. I like when everything else can fit into the laws of incentives, and I think they mostly can. As I write about these things, I hope to find something that I can start to focus this exercise around.
I am excited to join, hopefully a year from now I will still be writing (faster), and it will be a useful exercise for myself and anyone who reads.