Thoughts on technology and social web

April 30, 2009

Walled gardens

Filed under: Social Networking — Ravikant Cherukuri @ 1:58 am

Wikipedia says

“A walled garden, with regards to media content, refers to a closed set or exclusive set of information services provided for users (a method of creating a monopoly or securing an information system).”

In context of social networks, these are the networks that will want you to stay in network by locking your information in network. Social networks are dime a dozen. Some are old and some new. Some are popular and some not so much. With innovation on steroids, how would a successful network retain its user base when what the user is looking for changes faster and the want (need??) for new ways to communicate becomes stronger by the day. I will move from MySpace to facebook (facebook to some other) in a minute if I am convinced that facebook gives me more.

When is a walled garden a good thing? Not after the party moves outside.  No wonder many social networks are racing to share and inter-operate so their users can party inside their network. There is an increased capacity of small companies to successfully out-innovate (and become big) any established player. At the same time, there is very little brand loyalty. People go to wherever it is hip to go today or whatever service provides them with the best service and rightly so. Any revenue model that depends on users staying in a walled network will not work. So, what can one do to keep users in?

Innovate. A good strategy but innovation within a company cannot consistently beat the distributed innovation that happens across the many startup garages and passionate minds. This distributed innovation will always win. It takes so little to start a service. Think youtube, facebook etc.

Acquire. Leave the innovation to the small and nimble guys and acquire them to build your service. Easier said than done. These rarely work. Individual pieces are worth more than the whole. Sure, the founders will make money, the big company that takes over will make some news. The probability of success. Especially guaranteed success is low. Hotmail was a good acquisition for Microsoft and youtube might prove to be for Google. But it is sure harder to pull off.

Partner. This is the model that many networks today are shooting for. Provide a platform for the small guys to innovate on. The small guy who used to reverse engineer protocols of the walled garden is the most prized asset today. Take advantage of distributed innovation and keep the users in your network with the diversity of content. But at the same time, open API could ruin your bottom line. Fewer banner ads as people are viewing your content via a different third party client. Sure. But its better than extinction. When you partner to share the innovation, you partner to share the revenue too. The hope is that you would expand faster and live longer. Win with scale. This definitely looks like a workable model.

I am a big fan of The Innovator’s Dilemma. Its explains why the leader in one generation of technology fails to lead the next even if they invented the next generation technology. Disk manufacturers are used as one of the examples. Today with the faster pace of innovation and easier path from idea to reality, this is truer than ever. The main reason for not making it in the next generation is that the leader is busy making money in the current setup and is reluctant to rock the boat.

Keep trying to disrupt yourself. Or somebody else will. Be paranoid. Keep your boat rocking. Linear plans are for suckers (or bell companies of the 70s). In fact, if you are making any money today, somebody is already trying to disrupt you out of existence. If you succeed in convincing your users that your old service is a joke and that they should use your new service that flips the current paradigm, good! You still have your users. If somebody else convinces your users, you are extinct.

Being open interop is not an option. Its necessary to survive. At the same time, openness should be coupled with a business model that can make money in the new world. An API to expose your service and build upon is good. But compelling features that bring users to your service should go along with this.

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