Then again, maybe I’m behind the curve

I can’t help but be reminded of Umair’s thoughts on facebook from 6 months ago. I think he was dead right about the problem being down to facebook’s DNA. Excuse the long quotes, but I think what he wrote is very important to understand.

“Almost all of today’s new market leaders, interestingly, share this trait: it is a deep genetic difference that underpins advantage. The deeply felt desire to change the world for the better is ultimately how radical innovators are able to explode value propositions, redesign value chains, etc.

But that’s not what Facebook wants to do. Facebook wants to take over the world.

See the difference?

One is about improving things radically, about innovation: the other is about capturing rents, about scarcity and control.

We can put this a bit more formally. Facebook wants to play games of coercion and domination: I threaten, you obey.”

“It will take a long time – 6 months, a year – before they start to come down to earth, and see and understand these economic problems. ”

http://www.bubblegeneration.com/2007/11/research-note-facebooks-evil-is-in-dna.cfm

“Orthodox strategy teaches you to invest in complements if you’re a platform owner. Complements amplify demand – and if they’re free, you capture all the value.

Now, that’s all well and good.

But it masks a (much) deeper problem with Facebook – and gives us very strong clues about Facebook’s DNA.

Facebook has lots of traction – but very little to show for it. That’s OK – unless you’re evil. Good beats evil in the edgeconomy.

Now, think about all this strategically for a sec. Facebook – the hottest platform in the world – has to subsidize complements.

Why? Well, the answer is hidden in plain sight. Because complement producers can’t make capture any value by making complements yet. If they could, you wouldn’t have to subsidize them.

That is, there is little incentive – beyond traction – for complements guys to be interested in the first place. They certainly, at the moment, can’t make any money.

The point is that Facebook’s CEO and investors should not be investing in complements before they’ve found a working business model.

Because the two are in conflict. The more Facebook and it’s investors subsidize complements, the less pressure there is on Facebook to actually discover and experiment with a working business model.

Conversely, one can run this pseudo-pyramid scheme for as long as there’s (a sucker’s) money in the bank – but when the money runs out, without a business model, everyone will head for the exits.”

http://www.bubblegeneration.com/2007/09/research-note-pride-goeth-before-fall.cfm

As advertisers buy into Facebook – no one will be better off – except Facebook.

http://www.bubblegeneration.com/2007/11/research-note-lord-of-flies-or-shape-of.cfm

(i) After huge initial flurry, many developers exit. Most are long tail, so little real impact
(ii) As people remaining go up learning curve, less chat & more action
(iii) Shifts in the “ecosystem game” have made the payoffs for newer developers less than for initial ones – there is a strong probability that early entrants under the (now closed off) high viral game rules have got an unbreakable first mover advantage.