Lock-In at Silicon Valley

Bill Davidow from The Atlantic has a great post on the new business model that defines many giants in Silicon Valley:

Facebook is a perfect example. You can spend a lot of time and energy learning the ins and outs of the site, and building your image on the site by posting pictures, videos, and messages. You spend a lot of time getting friends to pay attention to you, and you in turn spend a lot of time keeping track of them. If you leave Facebook, you leave both your virtual friends and your investment in the site behind.

The so called "lock-in" strategy that is pursued by Google, Twitter, Facebook, and others, is building an internet consumer culture that is limited by choice, and punished for pursuing other outlets.

You definitely see this happening in a number of places. Davidow points out that when it comes to listening to music - Apple blocks you in with it's technology (iPhones, iPads, iPods) and its software (iTunes).

But I think when it comes to social networking sites - something more is happening than an effective business strategy.

Let's look at Google+ and Facebook.

I wouldn't argue that the failure of Google+ is because of policies by Facebook. Google+ wasn't super successful because of the very nature of social media sites. Consumers want to tap into their network of friends, and the tighter and more interconnected their network is, the better. That's how Facebook beat out MySpace in the first place. We have a whole generation of people (of which I'm included) who literally can't be on the computer for more than 10 minutes without checking Facebook. And you know why? Because it's the closest thing we having to being a room with all your friends. You have a birds eye view of your entire social life That is pretty remarkable. 

It's kind of like this. I have a core group of friends. We hang out. We do things together. You get the picture. Isn't there a lock-in strategy there? It's more of a pain to explore new friends and social circles because you have to completely rebuild those friendships.

You could infer the same thing about Facebook, and other big internet companies. So why would we (as consumers) even lift a finger to look for substitutes, when it's all right there! 


I'm not saying that these companies actively pursue ways of keeping us on their websites, but it seems like a lot of the work is already done for them.  

It's the end of the Valley as we know it.

Very interesting interview with Steve Blank in The Atlantic:

If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years,  at best, whereas social media will go big in two years, what do you think I'm going to pick? If you're a VC firm, you're tossing out your life science division. All of that stuff is hard and the returns take forever. Look at social media. It's not hard, because of the two forces I just described, and the returns are quick.

Here is a bit more:

In the last bubble, venture capitalists went into a frenzy if anything had an ear and eye. I don't think this a bubble. I think the valuations are a bit of a bubble, but social media is real.

But weren't some of the companies that came out of the dot-com bust "real"? Part of their problem was that they weren't making revenue and valuations were way off-base. It still seems like that is happening again.

Blank notes that federal small business and research grants are important in driving research in long-term return industries - such as the life sciences. I think so too. But it still means the market will need to naturally support these investments.