Social Business Models

In operations management, co-production is the use of a business’ customers to assist in creating a good or service. Obvious examples are assembling Ikea furniture, self checkout, and using an ATM. Social media is also co-production. The value of Facebook, Twitter, or the rest is not the platform; it is the network and content that we create using the tools provided by the company. Unlike assembling furniture or replacing people with machines, the majority of social media’s value is created through co-production while in our other examples, co-production represents a small portion of the total value.

Imagine that the Internet consisted only of institutions such as businesses, governments, universities, etc… These institutions have little need of social networks among themselves but maintain a presence on social networks in order to communicate with various stakeholders. In this simplified world, social networks would be nearly worthless while web search would maintain its usefulness simply as a way to access information posted by institutions.

A natural reaction to this scenario is to point out that the Internet is in fact dominated by people rather than institutions but that does not diminish the usefulness of the simple model. Any web application or service that relies on co-production also requires maintaining the attention of a large user base. This is different from previous software models where the user base only needed to pay attention at the time of purchase and is easily demonstrated by imagining how the business model will provide value without constant attention.

Attention, by itself, is not a competitive advantage because it is easily replicated and has never been maintained for very long. Business models that rely on co-production must build both a competitive advantage as well as convincing investors that their offering will draw constant attention year after year. Buying this sort of business model is akin to investing in a television show that you believe will never be cancelled.

This is not to suggest that social networks have no commercial value. Clearly, companies can make good money on advertising or charging access fees. The main point is that when someone talks about how the new social website is going to change the world to remember that attention spans are short and all shows get canceled.

I’m about to make a trip to Seattle, San Francisco, and Palo Alto to visit some tech companies and VC firms. I’m hoping to get some feedback on building long term value versus building temporary value but I am skeptical about receiving straight forward answers. Hopefully, I will be proven wrong.

Author: Probable Pattern

Former Marine and Curious Critter

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