Photo: Lachlan Hardy via flickr
Understanding social and how it applies to consumer behaviour today is paramount for all digital businesses. Today’s leading companies drive their growth and value primarily from their deep understanding of “social” and the network effect that they generate. Internet companies that get social right will have higher frequency of use and longer-term staying power – and will ultimately succeed in the end.
We do not have to look further than the recent and expected IPOs of LinkedIn and Facebook, respectively, to understand the market is rewarding companies that get social.
Social and network effects have always been the pillars of great Internet services. Second to access, didn’t AOL’s introduction of community services and email become the tent poles that held AOL’s users engaged? Yahoo’s email service is still the driving force behind its homepage and content views. In fact, email services might be considered one of the first social systems that hit scale, driving growth and user benefits through their network effect.
There is great value in consumers who use a company’s software to connect with their peers, to like and dislike publicly, share their photo albums and favourite videos, play and share their music and so on. It’s addictive to be social. As these charts show, it’s easy to see that value per user is higher for social companies than non-social Internet companies.*
However, getting social right is not an easy thing to do. It isn’t formulaic and it’s hard to predict what exactly will catch on with consumers. Many companies have tried and still haven’t figured out the compelling feature that drives social interaction on their platform.
To start with, it’s important to understand what makes social “social.” I believe there are three primary characteristics that typify a social product:
- User Profile – a unique identity within a system that relates to how the user represents himself/herself within the system. Each system should strive to capture a unique aspect of the user’s profile online to distinguish one system’s use versus another.
- Captured Content, Activity or Media Investment by the User – social products typically “hold” content from the user – photos, graph data, music, profiles, etc. Each system should differentiate what they “hold” from the user, to be separate from its competitors.
- Network Effect: the product value increases as more people use the product (i.e. the more people who play a game, the better a game becomes; the more people on email, the better the email experience).
Of the list above, it’s the network effect that is the most important – it’s the crux of what makes a social product so valuable. If you scan a magazine, read a good story about Lady Gaga and then simply put the magazine down, there is no network effect. Even if a thousand people read the same story, there is no network effect if they aren’t connected. But it’s another thing when you read the same story online about Lady Gaga, comment on it, your friends comment on it and their friends comment on it. The story naturally becomes more interesting to you as the community contributes to it.
While companies who were created for social purposes are likely have a leg up, there is still an opportunity for traditional Internet companies to succeed in the social game. But, in order to embrace social, it is not about just placing a comment box under each article – it is a restructure of how you display information to your audience and how you build your software from the core. It is about how you deal with timely data and how you make sure the product gets better as more people use it. They may be simple features – but they are critical – and, unfortunately, they are not cookie cutter.
I personally believe that email and communication services such as Skype and AIM have a major opportunity in social. They are ripe for reinvention. They have been a force of growth in the past, and they can once again be positioned as the heart of large networks and redefine how open social communication happens. But, it will take a rethinking of historical product principals and features – and a reinvention within these large networks.
I look forward to seeing how these new principals of social software redefine the core systems we rely on daily. Although the market has chosen a handful of current winners, we are about to see a re-emergence of growth across a wide variety of products once these principals are understood and the risks of reinvention are embraced.
Most recent Public Market values as of June 13, 2011 close for LinkedIn, Demand Media and AOL; Sharespost valuations for Facebook (6/14/11), Twitter (6/13/11) and Zynga (2/26/11); Huffington Post (acquired by AOL for $315M in February 2011) and Techcrunch (acquired by AOL in September 2010 for a rumoured $25M),; comScore April 2011 Unique visitors for LinkedIn, Demand Media, AOL, Facebook and Twitter; Zynga Monthly Active Uniques from company reports; comScore uniques at time of acquisition for Huffington Post and Techcrunch
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