Making Money on New Media Platforms during the Creative Phase, before the Commoditization Phase that leads to ubiquity. August 15, 2013Posted by bernardlunn in Uncategorized.
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Making Money on New Media Platforms during the Creative Phase, before the Commoditization Phase.
My theory is that New Media Platforms such as Google Search, Facebook, Twitter, YouTube, LinkedIn, Pinterest go through three phases on the path to ubiquity:
Phase 1. The “That’s the most ridiculous idea I ever heard” stage. 99.99999% of new media concepts don’t make it past this stage. This is the most harshly Darwinian game.
Phase 2. The creative phase. The few that do break out create ecosystems and big new companies are spawned within this ecosystem. The most obvious example is Zynga spawned within the Facebook ecosystem, slightly less well known is Hootsuite spawned within the Twitter ecosystem or Demand Media within the Google Search ecosystem.
I call this the “creative phase” because you make money in this phase by being creative. The guys with the big budgets cannot use them yet – that comes next – so creative people have a nice level playing field.
The creative phase is interesting because it enables lots of people to make money. If 99.99999% of new media concepts fail, trying to create one is not a smart way to make money. The odds in Vegas are way better.
However in the creative phase you can create new ventures and grow existing ventures.
Creating new ventures within ecosystems such as Zynga and Hootsuite is what excites investors and the media, but economically far more interesting is using these New Media Platforms to grow existing ventures. Creative people can basically get “free” marketing by getting people to pass on their messages to their network (not totally free, you still pay creative people). In this phase those creative messages are not yet drowned out by the big ad dollars.
Phase 3. The commoditization phase. This is when the Platforms need to make $ billions to keep post IPO shareholders happy. The Platform has to make it super easy for anybody with money to get traffic/business. In the process the Platform has to kill the creatives who helped make them successful in the Creative Phase. There is lots of “wailing and gnashing of teeth” in the media about this, but the logic is clear. Creatives make money for free in the Creative Phase. The Platform cannot make money from this, so they have to transition from the Creative Phase to the Commoditization Phase. The smart creatives understand this logic very well and move onto the next Platform that is entering the Creative Phase.
What matters to entrepreneurs and investors is the phase transition. It is easy to understand hot water and boiling water, but understanding the transition from one phase to another is harder.
The vast fortunes are made by the
entrepreneurs and investors who avoid most of the 99.99999% of new media concepts that don’t make it past the “That’s the most ridiculous idea I ever heard” stage and invest in one or more of the 0.00001% that do make it. That gets you on the front cover of mass media and the mailing list of yacht and plane salesmen. Not many people do this, so “fuggedaboutit”.
Figuring out the transition to the Creative Phase is far easier. You can watch the usage statistics and track the hype in the media. You can afford to experiment with a few that don’t become big as the experimentation cost is so low. You have to jump in early to find out what works and does not work before this knowledge is commoditized.
One Platform that is in this Creative Phase today is Pinterest. You can get a lot of traffic by creating something that is fun.
Google Search is the oldest of these Platforms that has gone through all three Phases. There was a time when you could use blogging creatively to make money. Ask Michael Arrington. That was during the Creative Phase. It was even possible to make money by spending money on Adwords creatively. Now it is purely a numbers game, which is great for Google and brands with big budgets.
Facebook is in transition. It clearly needs to make the transition and is working on it and will probably succeed.
Twitter is further behind. They are closing the ecosystem but the ad machine has not scaled yet, so there is still room for people to make money for free by being creative.
YouTube and LinkedIn are also in transition. Big budgets are starting to drown out the creatives, but it is not yet “game over”.
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Disclaimer: I am an avid armchair mountaineer. My climbing is limited to hiking, with an occasional scramble that scares me and some altitudes where the air is a bit thinner. I have scared myself enough looking over cliffs while holding onto fixed ropes and ladders to limit my climbing ambitions.
1. Teamwork. There is a reason the visual cliche of the roped together mountaineers resonates. If your rope-mate has chosen a bad rock to put the rope around and one of you falls, both of you die. If the hacker leaves a bug that crashes the system just when the hustler is demoing to a big cat….Or if the hustler says something dumb to the big cat after months by the tech team of creating the MVP that has just been unveiled… It takes time and shared experience to build this kind of trust.
2. Long routes with multiple stages. This is what differentiates mountain climbing from that other team-work visual cliche – a rowing team. When teams celebrate their Series A, it is worth a moment of sober reflection that this is the equivalent of reaching Base Camp, a critical milestone with the tough stuff yet to come.
3. Technical skills matter. Exactly how you tie the rope or put on a piton matter. Doing this without adequate training is suicidal.
4. Scary. Looking down a cliff where one false move means death is scary. So is being unable to make payroll if you don’t close a deal today.
5. Gutting it out. There are times when it is just a really tough slog, when the weak give up and the winners somehow keep going.
6. Judgement when it really matters. One of the all time great mountaineers, Chris Bonnington, has a great line: “There are bold mountaineers and there are old mountaineers but there are no old bold mountaineers”. Bonnington was rare in being both. He notched up all the great climbs, yet often turned around near the top because he did not like the weather or the lateness of the hour or some other factor. Cool judgement under pressur in other words or “know when to fold ’em and when to hold ’em”.