Wednesday, February 22, 2006

Industry Note - The Great Divide: Why is the Valley Afraid of MySpace?

I hear the same question from almost every Web 2.0 player and investor I talk to lately, so I'm not surprised to finally to see the meme surface: "I don't get MySpace; in fact, I'm scared of it - what's the %$@^ deal?"

This is the most relevant question (leaving aside VC non-questions like "what should we invest in?!" and media non-questions like "who should we acquire?!" etc) for the first half of 06 in the www 2.0 space.

Why? Because it illustrates something so important I'll say it twice:

Web 2.0 cannot live up to its (enormous) potential to create value that's structurally disruptive until and unless technologists understand consumer dynamics.

Web 2.0 can't live up to its game-changing potential until and unless the geeks step outside and think outside their own box of geekery.

This is a theme at Bubblegen these days.

I've pointed out in some detail why this has the potential to lead to what we sometimes rather unkindly call the "living dead" - ventures that don't die, but just kind of go sideways.

Of course, when I say geeks, I also mean to include VCs - these are senior members of the community, whose role is strategic guidance; but in this case, They're stumbling like everyone else.

I'm not kidding; check this interview with Esther Dyson about the attention economy. I don't mean to bust on Esther, but it left me questioning whether she really understands how to create and capture value from attention.

Or you could simply read VC blogs - they're great at giving advice about getting funded, and the arcana of VC, but they are distinctly not enaging in discussions about the dynamics of investing in and disrupting media, culture, etc (with the usual exceptions).

Why the VC disconnect? My answer: investing in enterprise software and semiconductors is distinctly not like investing in media and other culture industries. In fact, I would argue that VCs are in a competence trap - it's exactly those things that made them successful at investing in software and chips that make them very unsuccessful at investing in culture.

Coming back to geeks in general, I've recently used Ning and Flock as examples of this larger failure to understand or even engage with consumer dynamics.

But here's another lens into the situation.

Recently, I read an article that suggested Conde Nast was set to acquire MakeUpAlley (no insider info, I just read the article).

Check it out; click the link. If you're part of the Valley kru, I'm sure you'll be aghast.

It doesn't have Ajax, it doesn't have gradients, it doesn't have a clever name, it doesn't even have anything resembling a design (the horror).

But not so long ago, it was one of my absolute top acquisition recommendations to a Very Big Corporation.

Why? What it does have is a very, very, very deep understanding of what consumers in it's vertical value, how to connect them into a coherent community, how to manage and regulate this community, and how to translate those connections into deep and shallow value creation.

The MUA guys have a very, very, very deep understanding of the edge. Much more so than, despite all the (well-intended) conversation about the edge by the usual suspects, almost anyone in the geek world.

In short, they're doing for cosmetics lovers what MySpace has done for insecure, acne-ridden teens. But how many geeks or VCs can you imagine discussing a play like MUA? Clearly, not many - because it requires deep understanding of the very different world of real consumer culture.

I could cite you many more examples of non-geeks on the acquisition radar because they understand the edge, but the real question is this: why are these issues so difficult for the geeks to grapple with?

My answer: because for geeks, marketing, branding, advertising, etc are eeeeevil.

The challenge, of course, is for geeks to understand that it's exactly this value equation they should be disrupting, not ignoring: making marketing, branding, advertising not evil.

That they're evil doesn't mean you should ignore them - it means you should be destroying them and then redefining them: making them less about Madison Ave and BuzzAgent, and more about the deep 2.0 principles that in fact, are revolutionizing the deep economics of many industries - principles like peer production, gift economies, sharing, transparency, social capital, anticonsumption, and deep culture.

Let me be a bit more blunt than I'd like to be: geeks (you too, VCs), this is your Next Big Thing - stop blowing it already.

I'd give you some tips, but unfortunately I can't blog those...you can always ping me to chat.

-- umair // 10:24 AM // 22 comments

Comments:

Great post! I find myself falling into this trap a lot and it's great to be reminded to get out of it.
 

I work with Web 2.0 concepts in the marketing space and I hear what you are saying about a stand-off between techies and marketeers. I think it's one that geeksville is currently winning - partly because it owns so much of the language - but it would better and more productive if it weren't a battle. The marketing industry should always be the home for an understanding of consumer dynamics - although that isn't always true...
 

"The MUA guys have a very, very, very deep understanding of the edge."

Do you really think that MUA is the product of a thoughtful and deep understanding of a cutting-edge (so to speak) phenomenon? Or is it more likely a lucky break for a niche market.

If anything, it suggests that thinking very hard about design and interaction is far less important than just providing some very common structures on top of a database (blog, forum, reviews) and getting out of the way.
 

It's nice to see fashion finally coming up in the media2 discussion. I've been working in the space for awhile and, trust me, it's the polar opposite of the valley scene.

Umair, you might remember blogging about my startup, urbn forage, *ages* ago. Since then I've been able to pick it up full time and relocate from SF to NYC to work more closely with the fashion community. Going from a relative outsider to being knee-deep in conde nasties has been eye-opening, and my business model has turned completely around in the last few months as I've gotten more feedback from the industry.

I'd recommend reading the blog almostgirl.coffeespoons.org/ for some good insights by a super-smart fashion insider's perspective on new media (and, um, also how much she liked "Legally Blonde").

The comments on this post are also pretty telling: millionairesocialite.com/?p=193#comments

p's. Happy to finally be relevant.
 

> It doesn't have Ajax, it doesn't have gradients, it doesn't have a clever name, it doesn't even have anything resembling a design (the horror).

You might have been talking about slashdot. What's your point?

> deep 2.0 principles that in fact, are revolutionizing the deep economics of many industries - principles like peer production, gift economies, sharing, transparency, social capital, anticonsumption, and deep culture.

Jeez, talk about buzzword compliant. As any economics undergrad will tell you what you are hyping is nothing but barriers to entry and the lowering of them. Lower transaction fees, lots more options for collaboration. Thats what made email a killer ap. Is email deep 2.0 as well?

"Deep culture"? In today's world?!
"Anticonsumption"? WTF is that? Getting an ipod and spraying it blue?

You'd be of more service if you stopped dressing up simple economics into an ill fitting obscurantist language (can something be called language if the purpose is self-aggrandisement rather then communication?) and just leave it in its original clarity and elegance.

:)
 

Excellent post umair.

The 'geeks' have shown through web 2.0 that they have the skills to do extremely well in the first stage of a start-up: innovation. They have great ideas, and are able to nurture the ideas toward a finished product. Full stop.

The VCs provide excellent assistance in the third stage: scale - taking a product to market. They inject the capital required to make this happen, they have a rolodex that helps grease the rails, ... This has been their traditional role and it will continue to be a stage of a start-up where they will add valuable input. Full stop.

What is happening thanks to (insert Bubblegen buzz word of choice) is that the gap between stage 1 and stage 3 start-up development is growing and becoming increasingly difficult to cross. This stage, the second one, is becoming increasingly important for a start-up to successfully execute on: commercialization.

Commercialization is about a number of things. It's about validating assumptions made in stage 1 and taking the 'geek' out as much as possible in exchange for 'consumer'. It's about finding an initial foothold in the larger market (other than the larger web 2.0 crowd). It's about finding the right product benefits to focus on for the launch and lowering focus on features that don't add much benefit to a consumer (web 2.0 is very guilty of this).

The entrepreneurs who can creep out of the bounds of innovation and help steer their product successfully through commercialization will have a competitive advantage. The VCs who step outside of the bounds of stage 3 and take an active role in the commercialization process will have a similarly attractive comparative advantage.

We're already seeing this happen, to some extent - and we're already seeing the successful ones be rewarded. It isn't happening nearly enough, and we're seeing the effect of those who don't pay attention to commercialization - Flock, Ning, ... Hilariously, (cruely?), they've already become verbs. Ouch.

Stage 1: Innovation - web 2.0 has a handle of this.
Stage 3: Scale - there is an excess of cash just waiting to be invested

Stage 2: Commercialization - the 'geek' crowd needs to pay more attention to this crucial stage. It doesn't appear to even be on the radar of many start-ups. Until it is, I suspect we'll be enjoying a lot of new verbs entering our vernacular.
 

Its not just the technical and finance geeks. Design geeks refuse to get it as well.

I lurk on a number of design mailing lists and recent thread on one is all about MySpace. The reactions generally go something like this:

- The information architecture and design are horrible, and so MySpace sucks
- no one should like this thing
- no one over 23 understands MySpace
- its unusable, so why do so many people love it?
- 50 million people are just plain wrong, MySpace is aweful.

In other words designers are just as guilty of being unable to look beyond the rigid perspectives and pre-packaged judgements instilled by their profession. I guess small mindedness is a universal trait.

Ironic since so many designers adopt the pose of being professional envelope pushers.
 

Interesting you mention MUA. I have a friend who is an executive at a pretty big nail polish company. It took her a long time to convince her boss (the owner) that MUA was important. He was used to the major mags and the trade rags, and this just looked... amateur.

HOWEVER, in the end they found they could extract more value by basically paying someone to be a user of the site and direct people to their news, products, new websites, etc. rather then actually paying for advertising (which they also did).

That's another piece of the puzzle which people need to think about... the fact that advertising is only one way (and often not the best way) to influence the edge. The question is, how to monetize those who want to influence the community to their benefit?
 

One other point to follow-up, my friend told me what they really gained from getting into MUA was insight into what their customers were thinking. Totally invaluable and totally unattainable anywhere else.

Perhaps sites like this can combine their intrinsic understanding of the edge with some web 2.0 geekery to create smart summaries and brand awareness metrics in their verticals?
 

"Do you really think that MUA is the product of a thoughtful and deep understanding of a cutting-edge (so to speak) phenomenon? Or is it more likely a lucky break for a niche market."

Not to be rude - but 'niche market'? You've got to be kidding me! MUA covers makeup, perfume, clothing and accessories and these are all *huge* verticals.

I met with the creator of MUA last August and know she's got a deep love for both her market and her community. What her team's achieved is based on strong understanding of the space, not some dismissive 'lucky break.'
 

Hi Umair

OK, following on from our quick chat, here's my question:

I can see that the old economic model of the visual artist creating very expensive masterpieces (masterpiece = blockbluster/hit, I guess) is going the same way as the film and music industries.

So what's a viable (future-proof) economic model for a visual artist?

What is Art 2.0?

Cheers

Paul
 

Great analysis (and good comments from readers too).

Whether MUA is a result of deep understanding of consumers or of just throwing an idea at the wall and having it stick - it and many successful media/social ventures aren't likely to come from the well-planned and -insulated world of VC cash. VCs have gone overboard with "eating their own dogfood" - I don't like the phrase, but hear it repeatedly used on VC and startup blogs. That razor-focus is keeping them from spending enough time trying and adopting entirely new ideas, products, or businesses on-the-fly.

The whole discussion may be a moot point though, there are plenty of media companies that don't "get it" either. One I'm familiar with (www.crain.com/) is failing horribly in trying to move online. Each attempt that isn't a blazing success just makes them back farter away from the medium, instead of being used as a starting point to be changed and refined.

BTW, my favorite example of anti-2.0 is NeoPets.com (MTV "got" them). I wish they would get half as much attention as MySpace - I think their model is even more phenomenal.