The Social Media Life Cycle


This is the second post of my ‘open business models’ series (about Chesbrough’s book with this title). In the first post I introduced the incentives to go for an open innovation process which are: (1) a strong protection for ideas is in place, (2) there is a potential mismatch between technology and intellectual property and (3) there is a potential mismatch between technology and business model. I also highlighted the difficulties in selling or licensing ideas: (1) it is hard to imagine technology that does not fit your business model, being successful in other business models and (2) your ideas may be stolen when you disclose it to a potential buyer. In this post I focus on the technology life cycle and its relationship with intellectual property (IP) management. Also I relate the technology life cycle to social media.

According to Chesbrough the balance between the benefits and risks of exposing your ideas to other parties depends on the place of your technology in the technology life cycle. This cycle (figure) has been developed by Abernathy (Harvard) and Utterback (MIT) and consists of four phases. During the Emerging phase many riveting technologies strive to become the dominant design and the de-facto standard in the industry. During the Growth phase the dominant design establishes itself, and improves performance and market acceptance. In the Maturity phase of the technology there is little growth anymore but the market segments itself strongly. In the Decline phase, the technology slowly becomes obsolete (see figure).
Technology Life Cycle Phases

Chesbrough also explains how each phase asks for a different IP-Management strategy. During emergence companies should focus on creating IP and to become the winning design. A strategic question is whether the IP fits the business model. Chesbrough discusses the case of Apple who took many risks when releasing the I-pod (combining many innovations in a single product), but it could trust on its ability to deliver a superior user experience and it had its core technology well protected. During growth the losers might benefit from using some of its IP as bargaining chips to be able to copy from the winning design. The winning company should focus on capture the value from its IP in the market. During Maturity it is important to try to reemploy the technology in different business models. In this phase we see a shift from product to process (e.g. in order to become price dominant). Also there is a specialization in the value chain. For instance there is a separation of production and design. Vertically integrated companies can split up or specialize. IP management must focus on a use of IP elsewhere. During Decline IP management is not over. With clever management royalties can be gained from technologies that are abandoned. For instance a protected brand-name can be licensed to a new (cheaper) manufacturer of the technology.

How does this cycle work out in social media? During the emergence phase the focus of a company should be on becoming the dominant design in the market. For social media this means users, users, users. Many social media startups try to do this with very generous policies for users that lack sustainability from a business perspective. Social media are almost always free of charge, they feature strict privacy policies, advertisements are low profile, users are not pushed to hard to go premium, and so on. Until you are a winner you need to focus on building a user base. However, at some point the business challenges need to be addressed. Social networking sites (such as Facebook, LinkedIn and MySpace), for example, are good at building user bases and bad at confronting business challenges. Many SNS grow quickly, only to turn into ‘social graveyards’, after a couple of years. Often this happens because of policy changes that are driven by business considerations, changes that upset and scare away the early adopters of the community. Friendster did it with their aggressive anti-fakester policy. Last FM abandoned its freemium business model focusing on payed use for part of its services in several countries in 2009 (opening up vulnerability to competitors like Spotify). Ning did the same this year. It announced to focus on payed users  only; effectively abandoning most of its users. Facebook takes risks of a different kind, by changing its privacy settings drastically; obviously trying to please advertisers rather than end-users. I would call an SNS mature when it is sustainable in terms of business, as in terms of maintaining a user base (including respecting their community values). But I am not sure any SNS has reached maturity yet. In contrast to SNS, social bookmark sharing might have reached maturity. In this field we see a strong specialization. Bookmark sharing services exist for news, images and so on. Social bookmarking may even be in decline. Digg tries to borrow ideas from Twitter to revitalize its user base. This is a good idea, but not a good sign for the segment. Apparently users have found other ways of sharing bookmarks.

Chesbrough´s ideas are well applicable to social media, although the parallel is somewhat broader than just IP management. Social media are ‘protected’ by having a large and loyal user base and by having a sustainable business model. For a social media company it pays to be open, free, and generous in the beginning, but at some point protection of business interests becomes a priority. The company has to take measures that may scare away users, but if a smaller yet loyal base of (paying) costumers remains the company may survive and build a stable business. After some time, this user base may start to shrink again and in that case it is important to try to turn your software or service into something else, like Digg is doing.

In my next ‘open business post’ I am planning to discuss how webservices with API’s incorporate the ideas of open business.


3 Responses to “The Social Media Life Cycle”

  1. Related to
    this post: there is an interesting case about the development (and monetization)
    of WordPress from Forbes magazine . It is very reminiscent
    of my post on Twitter’s feature creap and community management
    titled: Is
    Twitter Getting Fat

  1. 1 On Net Neutrality « @koenvanturnhout MacroBlog
  2. 2 Reading Wikinomics « @koenvanturnhout MacroBlog

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