It is by Zsolt Katona from Berkeley's Haas School of Business,
Wednesday, 29 February 2012
The currency of social media is INFLUENCE
Here is a great summary of the kind of practical research we have done in the domain of social network analysis or 'social network marketing.
Friday, 24 February 2012
Are Telecom service providers social networks?
My recent interaction with Telecom service providers has been frustrating - to say the least. Telecoms face the very typical situation of declining industry life cycle. Their revenue model is "fee for service" and the service is becoming a commodity. They are under intense pressure to become more efficient in their traditional business, which makes it hard for them to concentrate on revolutionary change in their business models. In essence they spend all their energy on process innovation instead of business model innovation.
There are a few guidelines on what one should do in this situation. First, build a new team responsible for exploring revolutionary new ideas and isolate them from the existing business. This is what IBM did when they needed to respond to the PC revolution: they have built a small team (I think located in Texas) whose job was to invent a modular design for a PC. Second, identify booming new industries where your core competences matter. To stay with IBM, this is what they did when they decided to experiment and finally move into management consulting. Third, once a new direction is identified, mark the transition with a strong move (create a new company/subsidiary, acquire a new brand, launch a new product line etc.). Essentially, commit strongly to the new strategy.
Where should Telecoms search for a new business model? The answer is clear: media. New media is the booming industry within the tech sector where Telecoms definitely have great core competences and assets. New media is all about consumer networks, where success depends on identifying and exploiting consumer influence. While nobody has really found the magic formula yet, there is intense experimentation (see previous entry on the value of Facebook). Telecoms own and manage large networks of customers in which influence can be estimated and acted upon. Location-based social networking is booming and has incredible potential for advertising. The explosion of smart-phones allows for high quality interactions. All the conditions are in place for a revolution in advertising or more generally in 'network marketing'. Who is better placed to profit from this than Telecoms? They have access to millions of customers, know their demographics and payment history. Most importantly, Telecoms see consumers' communication patterns and their physical locations. Essentially, Telecoms are running large social networks, but instead of treating them as social media, they treat them as a fee for service business. For how long is this sustainable?
There are a few guidelines on what one should do in this situation. First, build a new team responsible for exploring revolutionary new ideas and isolate them from the existing business. This is what IBM did when they needed to respond to the PC revolution: they have built a small team (I think located in Texas) whose job was to invent a modular design for a PC. Second, identify booming new industries where your core competences matter. To stay with IBM, this is what they did when they decided to experiment and finally move into management consulting. Third, once a new direction is identified, mark the transition with a strong move (create a new company/subsidiary, acquire a new brand, launch a new product line etc.). Essentially, commit strongly to the new strategy.
Where should Telecoms search for a new business model? The answer is clear: media. New media is the booming industry within the tech sector where Telecoms definitely have great core competences and assets. New media is all about consumer networks, where success depends on identifying and exploiting consumer influence. While nobody has really found the magic formula yet, there is intense experimentation (see previous entry on the value of Facebook). Telecoms own and manage large networks of customers in which influence can be estimated and acted upon. Location-based social networking is booming and has incredible potential for advertising. The explosion of smart-phones allows for high quality interactions. All the conditions are in place for a revolution in advertising or more generally in 'network marketing'. Who is better placed to profit from this than Telecoms? They have access to millions of customers, know their demographics and payment history. Most importantly, Telecoms see consumers' communication patterns and their physical locations. Essentially, Telecoms are running large social networks, but instead of treating them as social media, they treat them as a fee for service business. For how long is this sustainable?
Tuesday, 14 February 2012
Facebook's value again
My colleague, Hernan Bruno did a great job (see http://blog.insead.edu/2012/02/what-does-a-100bn-valuation-for-facebook-mean/) estimating Facebook's value from data broadly available on the company as well as sensible assumptions about growth, retention, discount rates and other relevant parameters. The calculation is simple and considers wide and reasonable intervals. The conclusion of Hernan's blog is, to say the least, depressing. His estimates are far from the broadly mentioned $75-100 billion dollars, somewhere below $50 billion.
So where are the other $50 billion? I think they are in the yet undiscovered media technology that social networking reserves to us. The pattern is not new and over 100 years of (modern) media history has taught us that it takes decades before a new medium finds its killer application that allows a media format to extract value from the market. If you are skeptical, then check the early ads on radio in the 1920s or TV ads at the end of 1940s. They are a far cry from today's snappy ads. It took a long time for broadcast media to understand which advertising format would work for which category. With social networks we face the same situation: we all feel that there is huge potential in connecting a billion consumers and allowing them to share literally everything in their lives. The $50 billion question is: how can this social graph be turned useful for third parties who want to sell products to this population.
So where are the other $50 billion? I think they are in the yet undiscovered media technology that social networking reserves to us. The pattern is not new and over 100 years of (modern) media history has taught us that it takes decades before a new medium finds its killer application that allows a media format to extract value from the market. If you are skeptical, then check the early ads on radio in the 1920s or TV ads at the end of 1940s. They are a far cry from today's snappy ads. It took a long time for broadcast media to understand which advertising format would work for which category. With social networks we face the same situation: we all feel that there is huge potential in connecting a billion consumers and allowing them to share literally everything in their lives. The $50 billion question is: how can this social graph be turned useful for third parties who want to sell products to this population.
Friday, 10 February 2012
Media bias
Tuesday, 7 February 2012
Facebook on The Economist's frontpage
It is quite remarquable to see Facebook on the front page of The Economist. As usual there is some good data presented on Facebook's crazy growth over the last 5 years. The simple explanation provided for this success is 'network effects', which are well-known for creating market dominance by only one leading firm (the so-called 'winner-take-all' outcome). We have seen this before with Microsoft dominating the OS market or Intel winning on the market of microprocessors.
But as usual, the world is more complex. Facebook was a late-comer to social networks with powerful incumbents already dominant in many national markets. In some of these (e.g. Russia or Vietnam - see map in the article) other social networks still dominate. Moreover, it is also not clear that Facebook's social networking formula was better from the start. MySpace continued to grow fast well after Facebook's appearance and other social networks (e.g. Cyworld in Korea) dominated for a really long time in certain markets. Moreover, in the last few years hundreds of new social networks opened not least Google+ from a firm who has already been beaten by Facebook (while Orkut dominated in Brazil and India for a long time, Facebook recently overtook it in both countries). Moreover, what matters in social media is local network effects as opposed to global network effects: "I don't care about the number of people on Facebook, I just want to interact with my friends." For most people within a national culture there is no need to interact with the world.
Yet, it seems that network effects are global after all. Part of the story is that social media became platforms for much more than just checking in with friends. People use it to upload (store) their photos and videos, they use it to play casual games (e.g. the famous Farmville) and many other things. In fact, since Facebook opened the platform to third party developers, the attractiveness of Facebook also comes from the broad set of applications available (the same way apps help the iPhone). In fact, an interesting observation in The Economist article is that revenues other than advertising have grown much faster in the last year. Most of these revenues come from third party developers who need to share their revenues with Facebook (30% or so). This definitely changes the game to a traditional network industry. It also means however, that Google+ has a chance if it manages to leverage Google's other rich platforms that hundreds of millions use today. Interesting times ahead!
But as usual, the world is more complex. Facebook was a late-comer to social networks with powerful incumbents already dominant in many national markets. In some of these (e.g. Russia or Vietnam - see map in the article) other social networks still dominate. Moreover, it is also not clear that Facebook's social networking formula was better from the start. MySpace continued to grow fast well after Facebook's appearance and other social networks (e.g. Cyworld in Korea) dominated for a really long time in certain markets. Moreover, in the last few years hundreds of new social networks opened not least Google+ from a firm who has already been beaten by Facebook (while Orkut dominated in Brazil and India for a long time, Facebook recently overtook it in both countries). Moreover, what matters in social media is local network effects as opposed to global network effects: "I don't care about the number of people on Facebook, I just want to interact with my friends." For most people within a national culture there is no need to interact with the world.
Yet, it seems that network effects are global after all. Part of the story is that social media became platforms for much more than just checking in with friends. People use it to upload (store) their photos and videos, they use it to play casual games (e.g. the famous Farmville) and many other things. In fact, since Facebook opened the platform to third party developers, the attractiveness of Facebook also comes from the broad set of applications available (the same way apps help the iPhone). In fact, an interesting observation in The Economist article is that revenues other than advertising have grown much faster in the last year. Most of these revenues come from third party developers who need to share their revenues with Facebook (30% or so). This definitely changes the game to a traditional network industry. It also means however, that Google+ has a chance if it manages to leverage Google's other rich platforms that hundreds of millions use today. Interesting times ahead!
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