Yossi Vardi,
Chairman, International Technologies Ventures (Tel Aviv)
Moderator:
Yoram (Jerry) Wind, The Lauder Professor; Founding Editor, Wharton School Publishing; The Wharton School, University of Pennsylvania
Panelists discussing today's digital trends include Christopher Meyer of Monitor Group, left, and Barry Libert of Shared Insights LLC.
Social networking communities like MySpace, YouTube and, most recently, Prosper.com are being called by many the "next big thing" in business. But are they really a new and different kind of business model? From a social perspective, do they really provide unique and expanded benefits to their members? And finally, are they good investment opportunities of precious capital?
Based on their personal experiences starting, running and analyzing community-based businesses, the panelists challenged widely held assumptions and shed new light on how to launch a successful social networking venture.
"We are already all members of many groups," including alumni associations, sports teams and religious organizations, said Barry Libert of Shared Insights. We just don't think about real-world communities the same way we do virtual communities. But community banks, for example, have existed for decades, matching borrowers (who take loans) with creditors (who make deposits).
All panelists seemed to agree that social networking communities are a natural evolution of business. A society fulfills its needs by means of economy, said Christopher Meyer of Monitor Networks, and digital social networking is just the next step in that evolution of economics. Chris Larsen of Prospect Marketplace suggested that this is essentially "getting back to the roots" of the message "no people, no value."
So what are some of the common features of this new business model? First of all, it is premised on an assumption that collaboration is good.
Yossi Vardi of International Technologies listed some of the forces that drive people to participate in communities. The most important, he said, is collaboration. "People are wired for collaboration," he explained, "and most of the time it works." Vardi even suggested a physiological reason for this: humans like collaboration because positive interaction releases dopamine into the bloodstream.
To facilitate collaboration, a community must also have openness and transparency to ensure trust between members and establish credibility of the community as a whole. Third, while self-expression is another key driver of communities, self-governance is critical to maintain the proper balance of individual versus group interests. Self-governance, said Libert, becomes the "invisible hand" that protects your interests.
And underlying all these common features is the concept or business around which members of the community want to "engage."
"Viral (marketing, when embedded ads are conveyed, for instance, at the bottom of an e-mail) is a very misused word," he said. Word of mouth and the engagement of people with common interests are every different from viral marketing; communities start by asking people questions that provoke emotion, and then develop from there.
Having said that, the most successful businesses start with innovative ideas. The technology is the tail end of the process. "Once you can reduce (an idea) to an algorithm," said Vardi, "the magic goes away." Long before that step, many creative questions must be asked and answered about how the community changes the way members work, what member capabilities are required and what value is created and derived by members.
Vardi pulled up a web site, www.20q.net, onscreen for the audience. The site offers several versions of the guessing game 20 questions and seems to have a high success rate in guessing animal/vegetable/mineral nouns (among other things, such as movie and television tiles) quickly though a methodical posing of questions. The audience chose the word "wheelbarrow" for its word and answered questions generated by the program. For instance, "Is it something you can buy?" "Is it square?" "Is it something used in the garden?" After just a dozen questions, it hit upon the correct answer.
People working in collaboration can achieve similarly results through collaboration -— more quickly and easily and correctly than people will by themselves. The computer game poses questions that must be answered methodically (and accurately); in real life, Vardi seemed to suggest, collaborative groups would naturally track questions asked (so they wouldn't have to answer those same questions posed in numerous variations); and they would tend to be sure that, along the sequence, they found the best answers.
There are many different kinds of potential business models. Craigslist.org, for instance, is a not-for-profit enterprise, seeking instead to create consumer utility. In reality, potential social-networking entrepreneurs can fund their investments and generate revenue through a number of way, ranging from subscriptions and sponsorships to advertising and user support. And these methods can be mixed together, depending on the goal and scope of the community and its members.
For those hoping to make their fortune from social networking communities, Vardi offered an interesting perspective on the prospects: The first hundred million users, he said, are the most difficult go get and hold on to -- but that's also the threshold for success these days.
When Vardi sold ICQ (which had pioneered instant messaging) to AOL for $400 million, he said, people asked him if he thought AOL was being rational. He responded by saying that if he had been rational, he would not have sold the business to AOL, and if AOL had been rational, it would not have bought the business. Neither the buyer nor the seller had any idea how successful ICQ might be, but ICQ did eventually add significant value to AOL's overall business. From that perspective, Vardi said, "We think revenue is a distraction."
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