This is the subhead for the blog post
The couch potato watching TV for five hours a day made TV networks billions of dollars. These days, couch potatoes are still not getting exercise, but they gotten up from the couch and moved to the computer.
When you think about all the “in” online businesses these days, many of them revolve around mindless ways to pass time online. Here’s a few examples:
- Twitter.com: A site where you send people short updates on what you are doing at the moment. For example, if this was a Twitter post I might write: “I’m writing a blog about Twitter.” Apparently, people really like this site.
- Virtual Goods on FaceBook. My friend Jeremy at LightSpeed Venture Partners estimates that FaceBook makes $15 million a year selling “virtual goods.” For example, for $1 I might buy a picture of a flower and email it to you. Not a real flower, mind you, a virtual flower. Amazing.
- LinkedIn Groups. As I just noted in a prior posts, there are apparently hordes of people obsessed with joining as many groups on LinkedIn as they possibly can. Many of these people probably once also collected Garbage Pail Kids.
- Virtual Worlds. Second Life is the most obvious example.
- FaceBook applications. Be a pirate or a cowboy; takes movie quizes; etc, etc.
A lot of these ‘businesses’ have received significant investment, media coverage, and users in the last few years. The question I have is whether they are actually sustainable businesses.
My analysis of potential long-term success is based on the classic marketing distinction between a “trend” and “fad.” A trend represents a sustainable change in behavior. Increasing usage of the Internet is a trend. Couples having their first child after 30 is a trend. Hybrid vehicle usage is a trend. A fad, on the other hand, enjoys a sudden and significant spike in popularity, but then quickly fades into near oblivion. Think “New Kids on the Block”, The Pet Rock, mullets, and The South Beach Diet.
You can make a huge amount of money exploiting both trends and fads, but successful exploitation requires different techniques for each. Exploitation of a trend requires an investment in infrastructure, branding, and long-term planning. Think of the Toyota Prius as an example. In the first few years of its existence, it was sold almost exclusively to fanatical environmentalists, many of whom were willing to wait months or years to get one. Toyota sold only 15,000 Priuses in 2000-2001, the first year of sales in the US. In 2007, they sold 181,000 (up 69% over 2006!). Toyota didn’t make money in these early days, and then didn’t sell many cars. But each year of the Prius‘ existence, demand grew, production costs declined, and the Prius progressed from niche car to well-known brand.
Had Toyota executives spent billions on Super Bowl advertising in the first year of the Prius launch – and expected to sell 500,000 cars every year starting with the first, they would have lost a lot of money and cancelled the project immediately. Toyota, however, understood that hybrid cars had the potential to be a long-term trend and opted to introduce the car slowly and wait for demand to intensify.
A fad, on the other hand, needs the exact opposite approach. When the latest teen band gains stardom on the Disney Channel, the marketing objective is to exploit the band as quickly and as frequently as possible. As far as I can tell, Hannah Montana is the current “it” teen band. As such, the singer is touring constantly, they’ve created a tour movie, and the toy aisle at the drugstore is loaded with all sorts of Hannah related products (kids makeup, karaoke devices, etc). Marketing execs at Disney know full well that Hannah Montana probably has at most one or two more years of popularity before the next generation of kids become infatuated with another teen sensation.
So let’s apply these lessons to marketing online procrastination businesses, like Twitter or a FaceBook application. My sense is that the majority of these businesses are fads with little chance of ever becoming a trend. The novelty of reading a text message diary of your friends will likely fade away, as will the novelty of getting your friends to sign up as ‘pirate supporters’ on FaceBook. Indeed, the novelty of Friendster and MySpace seems to have faded significantly. It’s not out of the question that FaceBook may someday suffer some of the same fatigue.
Whether you are talking about a rock band, movie star, video game, Internet site, or social media application, if the point of the business is to provide entertainment and procrastination, there is a very high chance that your business will be a fad, soon to be replaced by another fad. How many rock bands are true dynasties? How many video games make it past a sequel? How many social media sites have shown more than one year of continual growth?
One important note: there’s no question that there are social media applications that currently have (or will have) an application beyond entertainment. Consider Flickr (photo sharing), LinkedIn (networking), and even FaceBook itself (contact list). All of these sites – though considered to a greater or lesser degree entertainment by many users – also have an element of utility that may enable them to be trends instead of fads.
But when we are talking about virtual Texas Hold ’em on FaceBook – with no value beyond entertainment – the assumption must be that we are witnessing a fad. In such a case, the best thing to do from a business perspective is exploit, exploit, exploit and hope that you sell the business ASAP.