Why just being young is not a reason to doubt Facebook

There are a lot of pundits and experts who are suggesting that Mark Zuckerberg and Facebook itself is just too young to trust.  That's just silly - there are a lot of ways to bring wisdom and experience into an organization without everybody having to have grey in their temples.

For one thing, there is some interesting research in the works of creative artists that led to an idea called the Old Masters and Young Geniuses theory.  This theory suggests that people either work painstakingly over a lifetime to achieve mastery; or that their inspiration and creative gifts begin early.  If Zuckerberg is an early genius, he NEEDS to be young!

Any high-potential new area is going to be massively uncertain.  If you want to have a big-stakes win, you’re going to have to be prepared to deal with the risk that comes from not knowing.  By the time you’re in the world of the tried and true, you are eliminating the risk premium that you could get.  The smart way to do this, as I've argued for some time, is to have options.  Like venture capitalists, you need to realize that there isn't much you can do about failure rates, but what you can control is the cost of failure and the discipline you apply to making investments.  The rules?  

• Make sure there is a big upside
• Limit the cost of the downside
• Cut losses on losers early
• Spread risks across a portfolio and;
• Make sure you have an exit strategy.

In most industries, there is the need for a fair amount of experimentation before we figure out what the business model really is. If you want to participate in the ultimate win, you have to be there from the beginning.

I would also editorialize that the stock market’s fascination with steady-state performance is suitable to the ‘exploitation’ phase of a competitive advantage and not very suitable for rapid growth and scaling or for restructuring – there are horses for courses, even in the financial markets. 

And remember - by the time Alexander the Great turned 30, he had conquered most of the known world! 

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• Posted Rita McGrath on May 17, 2012
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Why advertisements need to get a whole lot better before they will support social media

I was recently asked by a reporter what I thought the chances were for Facebook, and other social sites, to monetize their assets through advertising. Here's what I said:

The real issue for anyone trying to make money from advertising is whether the ads are regarded as generally positive or as an intrusive – even creepy – nuisance. 

Ads for offers someone genuinely might be interested in, that are funny or intriguing, or that provide genuinely useful information are typically quite welcome by consumers.  What other rationale could there possibly be for the existence of channels like QVC?? 

The problem is that poorly targeted, dull, heavy-handed or as I said, even creepy, ads are far more often the norm.  Facebook will never be able to monetize its reach and access if it can’t raise the game on the quality of the advertising on the site.  Myself, I get wierded out when I get ads for “female consultant? Click here to learn the 7 secrets of..” or worse yet, “are you a woman business owner?”.  It’s also tedious to be bombarded with ads for products one is not in the market for, that are a poor fit for what you do, or which are just plain completely irrelevant.  The company that can change the business model of advertising from ‘throw it against the wall and see what sticks’ to ‘here’s information about what we do that you will actually welcome’ is the company that I suspect will do best at monetizing their social assets.

 

 

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• Posted Rita McGrath on May 16, 2012
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Bing, Social Search and the beginning of the App Economy

All your contacts, all in one place

The integration of ‘social’ searching with Microsoft’s Bing Search engine is just the beginning of a new model of applications, in which applications talk to other applications, rather than operating in standalone mode.  Although the ostensible competitor in so-called social search is Google, this is just the beginning of a much more complex and nuanced game, in which Apple is far more likely to experience some of the fallout than Google is.

 

What Microsoft has done is to create the platform on which applications can share information with other applications, a form of connection that Apple does not support.  So rather than finding scraps of connections with other people that are locked within specific applications, using Microsoft software, you can find everything in one place – mail, “likes”, updates, locations and more.  Further, Microsoft’s solution is more compatible with cloud-based services, in which the software is constantly updated and you are always using the latest version (like Skype, Facebook or yes, Bing).  The Apple model is actually a throwback to an earlier time – when you bought software, downloaded or installed it, and it required continuous updating. 

 

As many web sites have noticed, recommendations from other customers count a lot in helping people to make purchasing decisions.  Hence the ubiquitous search engine support on sites such as Amazon, the posting of reviews on Yelp and the free availability of opinions on any number of shopping sites.  Well, imagine how even more powerful this idea would be if the recommendations are actually from people that you know, so that you can know how much credence to give to their opinion.

 

While I wouldn’t say this is a “Google” killer, or even an Apple killer, it does have the potential to introduce what some call the App Economy to us, an economy in which a broad platform, such as Microsoft’s, will allow data to flow from application to application, rather than being stuck in single-purpose software.  It will be interesting to see the competition playing out.

 

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• Posted Rita McGrath on May 15, 2012
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In case you missed it, Rita McGrath’s interview about Mark Zuckerberg

I had a great conversation (twice!) with New York Times Business Editor David Gillen about Mark Zuckerberg's preparation to become CEO of a publicly traded company. 

 

I shared my perspective that I think Zuckerberg has been pretty smart about preparing himself for the role and for making sure the the company and product don't suffer because of his own blind spots and personal preferences.  One gets the feeling that he has gone about learning to be a manager and leader kind of the way a great engineer would - by studying role models, learning from other people and getting lots of feedback from others who have been in the tech world.  He's also brought in terrific people to support him - Cheryl Sandberg comes to mind.  I'm very impressed at how he has developed both his own skills and the strength of the company.  And it helps that he isn't the very first twenty-something to ride a technology company into world-class size.  My guess is that he learned a lot from Gates, Jobs and all the other young entrepreneurs who took their shot at building something great. 

What are the risks for someone like Zuckerberg?  I think one thing that is going to surprise both him and those around him is that in a public company, there are some decisions you need to get a lot of buy-in on.  The acquisition of Instagram comes to mind.  As many have reported, the billion-dollar acquisitions was basically presented to the Board as a fait accompli.  Once you're a public company, a lot of investors are going to be uncomfortable with such high-handedness.  There is also the issue of Zuckerberg's famous about-face thinking on issues, in which opinions he held yesterday could change in an instant tomorrow.  On the one hand, I think flexible thinking and openness to new inputs is terrific and important.  On the other, again, the Street is a little like a political audience - it gets nervous when it observes so-called 'flip flopping'. 

Of course, becoming bigger and being dominant present different challenges than being a young upstart, as Google is busy learning.  It's one thing to have a great idea and build a company to deliver that.  It's quite another to build an organization that can thrive to produce another great idea. 

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• Posted Rita McGrath on May 11, 2012
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Rita McGrath will be part of the New York Times Business Live on May 11 (tomorrow!) at 10:00am

For those of you interested in the upcoming Facebook IPO and the extent to which Mark Zuckerberg will be able to lead the company as a publicly traded firm CEO, you might enjoy tuning in at 10 am tomorrow to watch the New York Times Business Day Live segment.  David Gillen, the Deputy Business Editor, does the interviewing.  I believe you can get to the link from the main business section index.

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• Posted Rita McGrath on May 10, 2012
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