I was talking to a bunch of friends over the weekend about the recent $100M funding round of Twitter. The opinions were varied with some saying it is overvalued while some others saying twitter is vastly undervalued.
This got me thinking. What does it take to build technology companies in this digital era that are built to last in Jim Collins’ way. You know the Microsofts, IBMs, Ciscos and Oracles of the future.
There is Google. Salesforce.com and Amazon too. But who else?. Yahoo and Ebay had the opportunity but have bungled it pretty badly.
Among the new web 2.0 crop the buzz/hype is with Facebook and twitter. Are they built to last?
I see a couple of problems.
The first is a well known one. Both have to crack the code on effective monetization that mints them billions of dollars with high margins. They don’t have it yet. Many smart people think they may be able to do it, so they get some more time to figure this out.
But there is another important question no one asks. Will they be important in 10 years? Both facebook and twitter are about real time communications. They both benefited from the fickle nature of peoples’ preferred communication modes. These modes of communcations get reinvented every few years that spawn new exciting companies. In the internet era, there was email (AOL), webmail (hotmail), IM (AIM) and VOIP (Skype). Then we have social networking (facebook) and microblogging (twitter). So far none of them produced a built to last company. That doesn’t mean facebook and twitter can not be the first ones. They are both independent and seem to set themselves up for the IPO route. But they do not YET have the kind of sustainable competitive advantage that google has.
The sustainable advantage put forth for Facebook and twitter is their userbase and network effects. The same one that also helped AOL, AIM, and Skype etc. That alone is not enough. Nework effects can bring in users, but you need to build something more of sustainable value from it. Google has built search relevance (both in organic and paid results) fromt their network effects that no one has been able to beat. That is a sustainable competitive advantage. Amazon has built a product recommendation engine based on their network effects. How about Facebook and Twitter? What are they buidling? That will be the key to answering whether or not they are built to last.