Wednesday, November 17, 2010

The Limits of Success - what internet companies can teach us

As we go about experiencing and studying the business model of internet companies, there is a fundamental big lesson to be learnt about managing businesses - the limits of success.

Every business, new or old, successful or not, has to undertake strategic planning for its future. It can be an informal approach (as it is with most SMEs and FMBs) or it can be a formal HQ directed approach (as with most MNCs). Whatever the model be, there was a time when strategic planning meant creating a vision for the next several decades. Then it got reduced to perhaps around 10 years, and then 5, and then not more than the present fiscal. I doubt if strategic planning today can be done with any amount of confidence even for the next 6 months.

This is especially true for internet companies. By the term "internet companies" I refer to those firms whose main business is to provide a certain platform/service to users on the internet. This platform/service can be social media (Facebook), search engine (Google), online auctions (eBay), cloud services (Microsoft) or retail store (Amazon).


What do we mean by "the limits of success?"

Going beyond strategic management, the internet companies are a great way of learning crucial lessons about the most pressing question in business management - the limits of success. Four questions define this:
  1. How much can a company succeed in its business?
  2. For how long can a company succeed in the same business?
  3. How profitably can a company keep on, in the same business?
  4. Is success permanent?
These questions almost seem encroaching in the domains of philosophy and futurology, but they remain the core questions that every manager worth his/her salt has to confront some or the other time. As I said earlier, studying the internet firms is a fantastic and enriching way of understanding the answers to these questions regarding the limits of success.


Let me illustrate my thought with some detailed examples :
    The engine and the windows
  • Browsers I remember way back in 1993, there was a time when the email was just beginning to make its presence felt. As the email spread around the corporate world as the most fancy thing to have, the path was set for the development of the first business model of dominating the internet - the browser. Netscape Navigator (NN) was the first classy internet browser that came along. Created by the famous Mark Andreessen, it soon became the dominating force for desktop internet search. However, this lasted only for a couple of years when Microsoft made a u-turn on its stand on the internet, and decided to come full force and destroy the NN. In classic Bill Gatesian style, Microsoft bundled a free Internet Explorer browser with its dominating operating system the Windows, and naturally, as always, it killed the NN in a short span of just 2 years. NN could do nothing and watched in horror as it almost vanished from the market. It still exists, but the glory days are over. As a dedicated user of the NN, it was quite shocking for me to see its sudden demise, and the inexorable rise of the IE browser. This - amongst other things - culminated in a legendary battle between Microsoft and the US Justice Dept, which again Microsoft won, and saved itself from being cut up in parts to avoid its monopolistic abuse of power.
  • Choices galore
  • Search Again, around 1998 I heard the word Google for the first time. Till that time, searching something on the internet was a mundane task, performed using a multitude of search engines like Lycos, AltaVista, AskJeeves etc. We never thought that search itself will become a business model for any company! And suddenly the upstart Google came along, created a fantastic new algorithm driven by their PageRank concept (which delivered much more relevant search results), and changed the whole game. Existing players could do nothing but watch as Google became the de facto starting point for anyone on the internet. Doubts were raised about their financial model (how will they earn because search was for free!) but Sergey Brin and Larry Page successfully built a text-based Advt format (AdWord and AdSense) that made them humongously successful. It took Larry and Sergey some time, and the wisdom of CEO Eric Schmidt to realise that their main business was not search but data-analysis and data-mining. Microsoft could do nothing but watch in horror as Google became the de facto standard for many more things- Email (Gmail), Maps (Google Earth), Videos (YouTube), and to some extent Social Media (Orkut). Microsoft tried everything it could but even with all the resources at its disposal, nothing much was achieved.
    Battleground
    supreme
  • Email There were hundreds of email providers around the world. The first big push for branded email was when Microsoft purchased the Hotmail service from an Indian creator - Sabir Bhatia. Unfortunately, Hotmail met the same fate with a new owner, as did MySpace (with Rupert Murdoch as the new owner). Its fortunes kept tumbling. Yahoo did rather well, and its email service became hugely successful. But the big bang came when Google introduced a completely new email service that was truly disruptive in nature - the Gmail. Yahoo could do nothing but watch in horror as millions defected to Gmail and made it their only ID on the web! Microsoft was never in the race, though it kept fighting bravely with its clutch of services under the MSN brandname, and kept the flame alive.
  • Social media Now this is really interesting :) The latest rage - social media came barely 7/8 years ago. Around 2003, websites started springing up that promised users connectivity of a different type altogether - online social networking or OSN. These websites had features where users could post/share/exchange information, pictures, videos about themselves with those whom they chose to keep in their group. And all this could be done in an informal setting. Some key learnings here -
    • Nobody imagined that social media would become such a rage (or else Microsoft and Google would be dominating it at any cost today), and hence a set of new companies emerged from literally nowhere to occupy the various niches in social media.
    • Facebook entered the informal networking niche, MySpace the funky and hep networking niche, LinkedIn the professional niche, Twitter the micro-blogging niche, Blogger the blogging niche, Orkut the teenager niche etc.
    • Till about 2006-07, they all were beginners. It was a game wide open. But the winners emerged around late 2008 and through 2009. Facebook, LinkedIn and Twitter trounced almost everyone else. But there's a catch - these are global leaders, and some nations (China, Russia) have their own local leaders as well.
    • Emperor,
      for now!
    • Of all these, Facebook's is the most astounding success story. With more than 500 million users (subscribers), Facebook presents a danger to Google and Microsoft (and Yahoo) like no other. While FB is the leader in social media right now, it will only take the introduction of new services on its platform to completely disrupt the existing power structure. Remember Nokia and what its integrated digital cameras did to Kodak?
    • Similarly, when FB introduces an email service, Gmail stands at a dangerous precipice. I was surprised to see the sharp and cunning dodge by Mark Zuckerberg when while launching the new FB email service, he claimed that Gmail is not on his radar at all, and that this is not an email service (in the true sense of the word) he's launching! That's smart. Perhaps he wants to lull Gmail into summoning no frontal assaults till he establishes the product well. Expect a grand Sumo battle in this space in months to come. It'll be vicious. {Signals of this started appearing when the single-click data-migration battle began (between Gmail and FB mail). That's a complete story in itself, in which Google appears to be holding the higher moral ground for the time being.}
    • We must remember that Google's desperate clawback through Wave and Buzz has all but met with failure. They failed to generate the kind of traction Google hoped for, indicating that customers cannot be coerced, howsoever subtly, into accepting multiple offerings from the same giant. Remember how Buzz had made the mistake of automatically connecting (without user permission) contacts in a user's Gmail account to the Buzz social account also - something that privacy advocates freaked out on.
    • Mail and Social are two different animals. This is a bitter pill Google had to digest post the Buzz fiasco.
    • Google's entire existence is on just two pillars - Search and Email. If tomorrow Facebook were to launch a really good search engine as well, then Google will find it rather tough to remain the marquee brand it presently is. The recent pathetic attempt by Google ($1000 bonus to everyone and a 10% payhike) to retain its staff from defecting to Facebook and others reflects the growing angst. And till only yesterday, we all thought Google was invincible. So much for permanence of brands!
    • Meanwhile, Microsoft's desperate attempt to integrate what all it can offer into one single device continues. Its launch of the mobile operating system WP7 with various services 'burnt into it' like Bing, Zune etc. is reflective of it.
      Warrior of the waves
  • Mobile phones A huge battle rages here. I cover it in this article as most mobile handsets (and OS) now have internet apps inbuilt (in them). The battle is between Blackberry (RIM) that's now trying to become something for everybody (a strategy fraught with risk), Apple (too cool for all others to match, at least as of now!), Nokia (trying to regain lost ground), and Samsung (with the successful Galaxy range). The Android OS will prove disruptive here, and may give Google an edge in the medium term, it seems. Although the Adroid has created a tremendous edge for Google in the battle for mobile OS, but analysts feel that the strategy of giving it away for free to any hardware vendor who asked for it, was not entirely sound.
    You can read more here :
    http://blogs.hbr.org/cs/2010/11/did_google_train_its_own_enemi.html

From all this, we can come to certain conclusions. Let me list those.

Three rules apply to internet companies :
  1. Though they look like masters of the world they have created, they live in a totally unpredictable world, alive with the fear of the next garage entrepreneur chiselling a bullet with their name on it even as they relish their present (temporary) moment of glory.
  2. Internet companies' branding is almost entirely in the control of their users, and no amount of control at the company's end is going to define the fundamental fabric of success. Facebook is what it is (in the minds of people) because the users made it that way. Orkut was the leader in India till Dec 2009. It isn't, now. Its fall has been a reminder of the dangerous network effect - "I need all my friends to be on Facebook because I love it and I am there. So dump Orkut." The words "Orkut" and "Facebook" may have exchanged places, and perhaps they do, in some parallel universe!
  3. No amount of funding can guarantee success of an internet enterprise, or else MySpace (and hundreds others) would not be in the ditch it finds itself now. Only users can make or break these companies.
In instant success lies the seed of failure :

A glance at the phenomenal success of Twitter - a micro-blogging internet company - will prove the point. Twitter completely depends on the users' tweets to enrich the user experience. More is the number of people around the people tweeting regularly, better is the flow of information through Twitter's servers, and better is the user experience when they search using any keyword. Mainstream media may be beaten hands down during crises, when realtime on-site tweets are uploaded by actual victims or witnesses, using handheld smartphones (or mobiles). Now the sheer speed of success of Twitter (from Jan 2009 onwards) is so astounding, there is no reason to believe that another internet company tomorrow will not disrupt Twitter itself. All this is totally unpredictable, almost asymptotic, and well, very scary!

Practical learning :
  1. Any 'consultant' or 'media visionary' who claims to guide these companies about their future is a charlatan. There is no point trusting them.
  2. Keep your antennas up for any new disruptive force, but do not be lulled into believing the funkiest of them. You never know which one will succeed, and the chances of your buying a stake in "all" emerging future winners are slim. This may be nature's way of restoring balance to the business ecosystem.
  3. Total domination on present day technology does not at all guarantee any presaging of what lies ahead - we may get too locked into the present mould of thinking to even imagine what lies ahead.
  4. Mergers, acquisitions and takeovers may or may not work the way CEOs want them to.
So, the central thought of this blogpost is:

The internet companies' world is completely unpredictable, driven by consumers' fickle choices, and winners can relish their success only with the fear of ultimate, and perhaps sudden, demise. The limits to their success lie in the collective subconscious of the populations using their product, and that, much like the sands of time, has only one thing that's certain - Change.

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16 comments:

ANKUR Shukla said...

Dear Sir,

Greetings!!

After reading your blog post, the very first word that strikes my mind is, WOW!!

As per my opinion, this particular post is very insightful for any user who is aware of such events but doesn't know the fundamentals behind them, indeed an excellent reading experience.

Regards,
Ankur Shukla
http://asncreation.blogspot.com

Munnu said...

Well, thanks a lot for this wonderful piece. We're living in an age where Ideas are changing our way of life. Competition amongst majors will definitely give more choice to users & govt can make sure that all these are legal so collaboration will increase. Rest let's hope the same.

DIVYESH said...

Respected Sir,

After reading this post I can say that there is no Ace in this field and they need to be innovative to compete with each other.

I do agree with my colleague Ankur, that this post has enriched with the fundamental of the Internet world.

Regards,
Divyesh Shah
http://narshana.blogspot.com/

Incredible Passions said...

Dear sir,
Charan Sparsh,
I have been a regular reader of your blogs since its inception in August 2009 and an ex employee in one of the PT centers. Its really an envisioning blog on INTERNET WARS , enlightening us about the transition of users taste in OSM.

balijindal said...

Great Blog Sir!!!
Keep on writing and keep on updating us!!!
Thanks a lot!!!

YOGENDRA RAI said...

Great analysis...

Sir you have rightly said "Though they(internet companies)look like masters of the world they have created, they live in a totally unpredictable world".

and got very knowledgeable facts.
Thank you.
:-)

Abhay Paliwal said...

Your style of writing and content are awesome and inspiring. All the best sir.
Best wishes
Abhay

Mitesh Sanghvi said...

Now this is a masterpiece!

Techno-analysis by a tech-savvy genius who isn't a technocrat!

Thanks sir!

Sandeep Manudhane said...

Thanks everyone for liking it, and commenting!

Mitesh - arey bhai bhool gaya bahot saal pehle mainey IIT se padhai ki thee? So technocrat toh by default main hua naa? :-))

YOGENDRA RAI said...

...and also liked the NEW THEME of your blog.
But i doesn't understand that all links having only AMAZON.COM with pop up.

Akhil said...

Respected sir,
aapke na keval blog padna balki ussse bhi zyada un bato par gaur karke unpar amal karna bahut hi accha lagta hai---------------

Akhil

minu said...

Dear Sir,
the simplicity depth,illustrations of thoughts with example is mind blowing.How the mundane task of search became easier with Google.
The OSN a boon and now has become a household affair,well connecting
generations.

The Central thought of the blog
"Change" very true.

Its a drop from the ocean.

May the doors of success be wide open for yoy

Nilesh Ratilal Patel said...

Crowd sourcing can only survive if U bring change with the aspiration of crowd.

PROTON Shraddha said...

Dear sir,

Blog is simply awesome.
Full of insights!

Funny part was that to read thrice-
NN, Microsoft and yahoo could do nothing and watched in horror....
Fantastic!:-)

Keep blogging!
It will help us to see many things in various dimensions.

learnig from life-By Divyesh Dodiya said...

Simply awsome, Sir. Really insightful. Keep writing.Let's see the bet of Google on Android really works or not.??

Satyawan said...

Dear sir,

I enjoyed a lot by reading this insightful blog.Sir you covered almost every thing which a techno savvy person must know.
Please keep writing this type of blog.
Thanks,
Satyawan Malhan