The network effect in web 2.0 is also its biggest tragedy

Side effects of using steroids

Side effects of using steroids

Robert Scoble, nicely served by his friend Loic Le Meur, started a discussion on Friendfeed in which he states that Twitter is broken and that unfollowing everyone might be the only solution. You can find it right here. The story got picked up immediately. Loic triggered this because he unfollowed everyone in Twitter and then build up a much smaller list of friends.  Loic has a good post up about his reasons for unfollowing everyone and starting with a clean slate.  Valid arguments and Loic states to have improved his Twitter experience tremendously.

I’m going to ignore thoughts about Robert and Loic following thousands of people themselves and using the strength of Twitter for their own needs as well. Following people by default leads to exposure to spam. I won’t discuss the topic of everything getting posted on 20 different places thus leading to a whole lot of duplication and pretty much useless aggregation. It is sufficient to say that this duplication increases the perceived growth of a service and it fuels our attention on size and growth.

Diving a bit deeper into what is going on leads to another discussion on Frienfeed, where we can read that Twitter itself is playing a questionable role in the way they have implemented a friend recommendation scheme. From that it seems that Twitter hasn’t put a lot of effort in getting rid of the bots populating the service right now. The underlying reason seems simple enough. Spam is profitable and the metrics we use to measure web service successes are flaky.

What are the most important external measures to determine the growth and success of web services? Things like traffic, page views, unique visitors, registered users. As a result, the more spam bots Twitter has in its network, the higher each of these measured variables. Getting rid of spam bots equals value destruction for them. Can you imagine a headline at the major tech blogs  stating Twitter traffic drops dramatically, only to find out this has happened because Twitter did its community a service by removing spammers. It’s not going to happen. And that is where Twitter and the rest of this web ecology are taking a wrong turn.

We're a bunch of Chimpanzees

We're a bunch of Chimpanzees

The constant pressure to perform towards the outside world, the Tech blogging community, investors, traditional media, is caused by this stupid growth rat race. Fueled by the initial successes of companies harnessing the network effect, we are now all drilled as a bunch of chimpanzees to measure the success of a web service by its millions of page views, visitors, registrations. Every month the major tech blogs give us the ‘Compete’ or ‘Comscore’ benchmark. Are you in or out? Who has the biggest …(you can fill that in yourself). You do not have millions of visits daily? Fail! Web 2.0 on steroids.

It is sick. I can’t think of a better way of expressing this. This whole rat race towards world domination is one of the worst aspects of the network effect. We like to think of the network effect in a positive way. A service gets better as more people use it. There is a major downside to it that we seem to ignore. The network effect causes the network to be more important than the users in it. It is more important to acquire and lock in new users than it is to keep existing users happy and satisfied. Users have become statistics in Google Analytics. Our performance dashboards for the valuation of companies do not include anything other than growth figures. Installations, registrations, page views, visitors, bounce rates, uninstalls etc.  And that sucks, big time.

I do not want to be reduced to a number, a statistical value. I want service providers to care about me. I want them to spend more time on keeping me satisfied in their service than spending time on getting more users in the network. I want large companies to act small and personal. I want the growth of a service to be truly organic, instead of getting ‘orchestrated’. I want investors and entrepreneurs to stop feeding web companies steroids to grow big. I want them to start holding companies accountable for generating revenues. I want people to stop caring too much about what TechhCrunch, Compete, Comscore or anyone else has to say about the growth of web services because it only keeps this rat race going. I want CEO’s and journalists/bloggers to start talking about customers instead of taking about the growth of their network (check a few interviews and you’ll see what I mean). I want the web to be the place where user value is more important  than network value.

I realize I am an idealist in many ways. I’m fine with that. But I have enough experience to know that focus on user value delivers the best type of business and revenues. All it takes is a bit of courage and to stop ‘competing’ on growth and world domination. Focus on users and give them the best experience you can deliver. If Twitter would be doing that these spam bots would be gone in days. But Twitter is trapped in this steroid growth race. So they won’t be doing that. See how this leads to wrong decisions? Value destruction instead of creation.

If you deliver user value, you can scale using the opportunites the web brings you. If your strategy is ‘growth first’, then user value can never be added later. And don’t think focus on user value can’t be combined with growth! There are enough good examples of that. Amazon can do it. And so can you.

The praised network effect is also web 2.o’s  biggest tragedy.

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18 Responses to The network effect in web 2.0 is also its biggest tragedy

  1. ajag says:

    Alexander

    Great post (again!). You pose some interesting problems for VC’s and those interested in creating high value companies.

    The metrics are undeveloped, the models are freemium funded and the hype is sky high. As an industry we have along way to go.

    I get the feeling you expect the market to become more of a CRM tool then a marketing model.

    If this is to be the case then scale will be a disadvantage (due to cost ) and we should expect to see smaller networks with higher interaction and repeat high margin custom.

    The established way of doing things is still evolving but until your user value focused service starts making serious money then I doubt we’ll see any significant change in metrics of success and company valuation methods.

    Keep being an idealist – a few of us like that :)

  2. @Ajag, thank you.

    Amazon makes huge revenues. I always liked smugmug, they are doing well too. 37 signals, the list goes on and on if you start looking around ;-)

  3. ajag says:

    I see what you mean on Amazon and 37 signals. I’ve not used smugmug. But the first 2 deliver a product or productivity benefits.

    What about the media side? How do you focus entirely on user value if your model is dependant on showing huge numbers of eyeballs or engagement?

    Personally I’m not a fan of ad funded models. I’ve just exited one I started a while back – it SAAS for me from here on in.

  4. Victorseo says:

    Right On! You have hit the nail on the head. Good news is a new revenue model for all social media is right around the corner and it is value based not numbers based. Interestingly, social media is following the same crash course for disaster that the economy followed the last few years. As I recently noted on my blog, Economic crisis is the media hype name for sensible revaluation. Sensible revaluation must occur in social media, and will, soon

  5. @Ajag if your model depends on huge numbers of eyeballs then there is only one way to get that right. make sure that the thing you want people to look at is valuable. Example: Display ads in Facebook -> no value, Display ads in Search -> value.

    It isn’t hard to think what can be valuable for your users. It is hard to let go of the current web 2.0 model where the size and the growth re valued higher than real revenues and user value.

  6. @Victorseo, Sensible revaluation, good one. We will hopefully see some cleaning up. But getting people to act less toward world domination requires more than that. The basic reaction of investors, the press, bloggers and everyone else in this ecology seems to be “can this be another Google”. Dumb thinking imo ;-)

  7. Great post. Focusing on numbers is interesting sometimes, but focusing on building a great service is far more important. Truth is the numbers usually follow anyway if you really have something great.

  8. @Robert, exactly.

    But you know as will as I do, that this behavior isn’t about to change. It requires a big mental shift in business models and redefining when a company is successful.

    There will be more and more good examples, so let’s hope people will start to realize that user value generates revenue and growth in a more powerful and valuable way than just focusing on growth itself

  9. jilska says:

    You may be an idealist, but I think you’re also being true to yourself and honest. That is where I think we are headed.

    This is so refreshing to see a conversation on ‘the right thing to do’ vs ‘the spread sheet’. I’d love to see more examples of companies doing it right as we see them and the background of how and why they did what they did. What metrics did they use?

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  12. mellyreed says:

    @Alexander,
    “I realize I am an idealist in many ways. I’m fine with that. But I have enough experience to know that focus on user value delivers the best type of business and revenues. All it takes is a bit of courage and to stop ‘competing’ on growth and world domination. Focus on users and give them the best experience you can deliver.”

    Thank you. :)

  13. Bertil says:

    I’m glad to see that I haven’t been hammering that twitter’s lack of relevance filter hasn’t been in vain. But,while Scoble and Loïc point to that, you address another point, which is community building; I won’t say anything more intelligent then:

    http://www.paulgraham.com/hackernews.html

    I’ve been trying to figure out why Facebook insists so much on real names, and I do believe that they have been investing on a far longer term success: far more efforts are spent on relevance, for instance — up to the point where most of their mechanism prevented them from being part of OpenID early on.

  14. @Bertil, thank you for the link. Excellent read!

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