Grown Up Thinking

In our recent tech history, there have been countless examples of emergent technologies being introduced to the marketplace before their time with a resounding flop, only to be resurrected a few short years later. A few worth mentioning:

* In 1996, CompuServe launched its WOW! initiative as the first major consumer Internet service that reached critical mass. It had a clear first-mover advantage in a space on the verge of exploding. However, technology issues and questionable marketing moves led to Compuserve’s demise at the hands of AOL, who later purchased the Compuserve business. AOL would go on to create a company that was worth nearly $15 Billion by the time it was purchased by Time Warner in 2001.

* In 1997, a web service was launched called SixDegrees.com which I regard as the first social networking site ever created. It was based around the premise of six degrees of separation (insert Kevin Bacon jokes here). At its peak, SixDegrees maintained a user base of over one million people. It was purchased by YouthStream Media in 2000 for $125 Million (the same year YouthStream also purchased The Magma Group, the first company I founded,  for infinitely less!). Ultimately, SixDegrees failed because the web had yet to be fully integrated into social lifestyles of the Gen Y audience they were targeting. It took an additional failure of Friendster (and, in some ways, MySpace) before Facebook was introduced, a business now valued by some at over $10 Billion.

* In 2000 DodgeBall was founded as a way of making social networking physical  by connecting people based on their actual geographic locations. In 2005, Dodgeball was acquired by Google, where it floundered in irrelevance juxtaposed against their behemoth search business. Ultimately, it was shut down. In 2009, Dodgeball founder Dennis Crowley created FourSquare which was seen by many as the breakout technology application at the SXSW conference and now looks like a candidate for the next big thing in the social media landscape.

Many blockbuster tech-based products services have been borne at the expense of the original brave pioneers whom broke new ground with the dreams of a first-mover advantage. The lesson here? Sometimes it’s good to take a step back, see what happens to others and wait for the right time to enter a marketplace. Sometimes the early bird gets the stale worm.

What failing business model now in the marketplace has the making of success in 3 to 5 years?

YouTube has recently announced it will be revamping its site by focusing on ad-supported premium programming (a la Hulu) and completely separating the user-generated content that has long accounted for most of the site’s traffic. The redesign will now include four tabs for browsing: Movies, Music, Shows (all ad supported) and Videos (user-generated content.) I assume this change will definitely ruffle some feathers as the very content that built YouTube up to its current status as the #1 destination for video is largely being relegated to a digital ‘back shelf.’ One could argue that the site’s unique and personal feel will be lost in addition to  bombarding end users with more and more commercials. On the other hand, promoting premium content and features (including the truly nifty “pop-out” and “dim the light” features of Hulu) could potentially add more quality and value to the site.

I’m anxiously waiting to see how YouTube will ultimately pull it off. I’m admittedly a fan of both sites for their very different approaches. But I would worry that taking the You out of YouTube would take some serious value out of the equation for the masses. The balance between the two will definitely need to be maintained to ensure that quality, content and utility end up benefiting consumers. Then it can truly be an advantageous relationship between people and advertising.

Every recession in recent American history has consistently shown ad budgets decline. We’re already seeing evidence of this in the current economic downturn. However, history also shows us that when the economy goes south, those who maintain their budgets or even increase them have far greater results compared to spending levels when the economy is doing well. The lesson here is, when competitors are decreasing ad budgets, pounce.

In the last advertising slowdown, companies like Netflix, Expedia, and Zappos managed to grow over $100 million in revenue by taking advantage of cheap media. The current recession, however, is not only going to lower the cost of media, it will also lower consumer confidence. People will be saving more and buying less so companies will have to step up their game to stay competitive. Many companies have turned solely to online campaigns like Search Engine Optimization, Social Media Optimization and viral campaigns, seeing much better results at a fraction of the cost. Because people are saving money by getting rid of cable, driving less, and spending more time online, people aren’t seeing TV spots, billboards, and print ads like they used to. Today, everyone is online for everything, which is why this recession is the perfect time for traditional companies to try nontraditional advertising.