“Sustainable” competitive advantage in tech

I spend a lot of time thinking about “sustainable” competitive advantage in the world of consumer-facing technology-enabled services.  The once volcanic MySpace now appears to be a cooling lump of lava rock.  Of course there is news today that AOL is finally on its own.  Wonder how many really miss Geocities today.

All this leads me to look more closely at valuations of these firms.  During the .com days, at least we had ‘eye balls’, inaccurate as they might have been.  But at least they provided a frame of reference.  Today, we could use ‘clicks’, ‘unique users’, ‘growth rate’ and a slew of other metrics.  However, the big, I guess Billion $ question is … how long will success last?

Twitter came out of … literally nowhere.  Fledgling Facebook overtook MySpace.  AOL, the grand daddy of ’em all risks becoming totally irrelevant to a Facebook-fed generation. 

3 obvious ideas to ponder upon … as an investor / user / competitor:

a) What’s feeding your success? Ironically, it appears that the very hand that feeds success gets bitten.  Consider that the inherent power of Facebook that comes from its millions of users can itself be a liability.  There is literally nothing stopping Facebook’s competition to use the power of Facebook groups to launch its competing set of services.  Of course, there is nothing that could stop users’ leveraging their own social networks to create a tsunami-exodus to a more attractive alternative. 

b) What’s the abandonment rate? The moats keep getting destroyed.  Switching costs are pretty low.  While there is an inherent lock-in that comes in with the network-effect, there is nothing stopping someone from trying a more attractive alternative.  And then, one by one, the network joins.  Until the entire herd migrates to greener pastures.  Almost like humans did in ancient times.  Maybe, just maybe, we are meant to be that way.  Seeking.  Searching.  Settling Down.  Seeking.  Searching.  Settling Down. … … …

c) What’s the innovative alternative? Human time is limited, attention spans even more so.  There are reports that youngsters in Japan spend more time on electronic devices than “on” the Internet.  As we get older, our own preferences change.  We hang out in different places.  Our kids might consider our hangouts ‘uncool’.  Any bets that Facebookers’ kids will find their own hangouts?

So, wither valuations?  What is “sustainable” competitive advantage?  Sure these properties can add features, integrate with other properties and acquire interesting upstarts.  But, in many cases, they risk losing the very simplicity that attracted users in the first place.

sai@obviousideas.com

www.obviousideas.com – the Business Value Alignment™ firm, linking Strategy | Organization | Execution

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