Real Value

“Facebook founder Mark Zuckerberg was 10 years old when David Bohnett, then a 37-year-old mainframe programmer, hatched an idea: Set up a Web-based ‘community’ where young people could divulge their most intimate feelings. He grouped those musings into different themes, and ushered in advertisers to hawk Volvos and Volkswagens.

“This ur-Facebook of 1994 was called GeoCities. And both its rise and fall are a history lesson for Mr. Zuckerberg…

“GeoCities' tale… shows the value of humility, even in moments of the sweetest triumph.

“GeoCities grew popular before broadband… but the basic, expressive elements of today's Facebook and competitor MySpace, owned by News Corp., were all right there.

“‘It's the same as it is today -- people want to feel like they're connected,’ says Mr. Bohnett...

“By August 1998, GeoCities was the third most-visited site on the Web... Sixteen months later, Yahoo paid an astounding $4.7 billion, calling the new Yahoo-GeoCities combo ‘one powerful offering...’

“Life inside Yahoo was smothering for GeoCities, say a number of people familiar with the transition. Developing new technologies for GeoCities' communities slowed to a crawl, as its staff of 30 software developers was cut to a skeleton crew. Yahoo focused instead of building traffic, not necessarily on the programming for improving person-to-person interaction. ‘Had they done things right with GeoCities, there would be no Facebook, YouTube or MySpace,’ says one...

“Yahoo's treatment of GeoCities is particularly relevant for Mr. Zuckerberg...

“If he could give advice to Mr. Zuckerberg, [Mr. Bohnett would] recommend heavy investment in new technology to ‘stay true to what the user experience is…’

“Alas, advertisers have found Facebook users to be a huge audience -- that could care less about ads. The percentage of users clicking onto site advertisements on Facebook and MySpace are lower than typical Web sites…

“‘It's not that easy to monetize social media,’ says Eric Hippeau, a managing partner of Softbank Capital… So far, he says, ‘it's not that easy to match the right advertising with the right audience.’

“That squares with the experience of Thomas R. Evans, GeoCities' former chief executive. ‘When you're as successful as GeoCities, everyone tells you how wonderful you are. It causes you to miss opportunities… People at the time were dismissive of old media experience. But it turned out looking exactly like the old media business. You have to execute and provide both the consumer and the advertiser with significant value.’

“At some point, the questions about Facebook the business will eclipse the praise of Facebook the social phenomenon. And once that point hits, Mr. Zuckerberg will be less able to dictate the terms of how fresh capital is put to use.”

(“The Game: For Facebook, GeoCities Offers a Cautionary Tale; Can Rise and Fall of Once-Hot Site Sway Decisions on Funding, IPO?” Dennis K. Berman. Wall Street Journal: September 25, 2007. pg. C.1)

THE RULES HAVE NOT CHANGED. It is not different this time. You are not re-writing the rules. Who is your customer? Who pays? What are their needs? How can you partner with them to solve their problems and enhance their utilities? Continuously keep learning to add value to those who provide your cash flow. That is the point of innovation.