Eric Jackson, last week, drew attention to a truism of modern business - most companies still don't get mobile or how it affects the way we work. And he stirred the pot with the claim that Google and Facebook will disappear in five years time, a theme he returns to today, because they lack new generation know-how. So, link bait aside, how do we sort out truth from imagination in this debate? Will they, won't they, might they?
It's no surprise that Google and Facebook give an analyst cause for concern - they seem to make money so effortlessly and yet their businesses are not easy to understand against traditional models. In fact they seem to specialize in being misunderstood, especially Google.
The reality though is that both Google and Facebook are different types of businesses from the norm. They are platform and ecosystem businesses and their longevity and growth has to be judged against what we know of the platform and ecosystem wealth model.
It’s difficult for analysts to see this in part because platform and business companies have a tendency to adopt a value system that’s different from the one analysts apply to investments today. It’s one that does not cow-tow to the existing norms of the stock market. Platform and ecosystem businesses fight for the space to be different and to forge a new wealth paradigm.
Amazon, another platform and ecosystem company, is a great example of an enterprise that has acquired a lot of leeway to define a new business paradigm.
The platform and business model is the subject of The Elastic Enterprise, a book I co-wrote with Nick Vitalari. The paper edition is out at the end of May but you can see the e-edition on Amazon now. One handicap in self-publishing is not having the publicity machine to get the ideas out quickly. Still the book is finding an audience, including a great review on Amazon recently from Keri Pearlson of the IT Leaders Forum:
“In the right hands, this book provides really value. It gives CEOs and general managers a clear vision of what could be. At the same time, it gives CIOs and insightful IT leaders a manifesto to follow to provide strategic ideas for their organizations.”
What we’re drawing attention to in The Elastic Enterprise is critical also to Jackson’s thinking. He makes the distinction between his old self, who believed that great executives could shape and drive their external environment at will, and his emerging self who sees more value in the emerging field of business ecologies.
The conclusion to draw from that transition is not that Facebook and Google will fail. It is, rather, to understand how platform and ecosystems function. Great analysts need to adapt their expectations. Here’s a different way to look at Google and Facebook. But first a quick summary of the platform and ecosystem model.
The platform and ecosystem model
A business platform is both a software environment and a set of rules for business activities within an ecosystem. The platform typically organises highly scaled interactions among partners according to terms and conditions rather than negotiated contracts. It is an ultra-low friction way of doing business. Generally the platform enables highly scaled third party business activity.
A modern business ecosystem is a collection of companies and individuals who are signed up to the set of rules on a platform and who become a productive resource both for the platform owner and for each other.
Platforms and ecosystems that succeed typically have strong information markets around them, made up of ecosystem members who advocate the platform, and writers, bloggers and news organizations who are essentially fans of the ecosystem’s mission.
Good ecosystems tend to be organized around some form of altruistic goal that also has serious economic benefits. It might be, for example, to reduce the cost of mobile communications, to organise the world’s information, or to create products and services that are a step-change in ease of use.
They also need a style of leadership that excels at attracting resources such as developers or content providers.
Those are the essentials-in-brief of the platform and ecosystem model.
Google’s search business is light years ahead of any competitor in no small part because it has such a great ecosystem. Think of all those SEO experts who sprang up to interpret page rank and who became foremost advocates (the information market) of Google as a search engine, the copy writing community that advocate Ad Words, the search engine marketing community that will do your ad buying. Together they satisfy the conditions of a platform and business ecosystem.
I’ve never believed Google was a better search engine than AllTheWeb, which disappeared under the weight of the Google ecosystem about ten years ago.
The problem for Google, if I might say that of such a profitable business, is that it has three ecosystems - Android, APPs and Search. They don’t interconnect enough, and in Schmidt and Page Google lacks leaders who can provide enough transparency and detail on what is expected in these ecosystems. That's not an appeal from the stock market, though. The thousands of companies that partner with Google in some form need to know.
The Android ecosystem is powerful but it is unclear what its short or long term benefits are for Google, which means it functions for handset makers but who had clarity on how it works for its owner? The apps ecosystem is less powerful but even less clear. Unless you are already operating within productivity apps you wouldn’t easily be drawn to it, yet ecosystems are dependent on leaders who attract resources.
My concern over Google as an analyst would be its apparent lack of familiarity with its own business model innovations outside search. It needs a leader who can attract resources into its two other ecosystems, and one who has a unifying vision for all three.
What we seem to have instead is a vision for unifying its products around social networking. That does not carry a huge amount of conviction. Google is trying to be something it is not rather than unifying what it is.
Still, these are problems of an emerging business model that none of us can pretend to understand fully. Page and Schmidt can work on it against the background of substantial profits, somewhat protected from negative analyst commentary.
Facebook has utter command of the information market around social networking and, in Zuckerberg, a leader who is effortlessly able to attract resources. As Facebook approaches IPO, the ecosystem around it is also attracting a huge amount of attention from investors.
Talking recently to Michael Scissons at Syncapse, a Facebook marketing expert, I discovered that the investment community is more than anxious to invest, not in Facebook alone but in all the companies that make up its ecosystem.
A lot has been made of Facebook’s declining revenues in the last quarter and there’s no question management is distracted by the scale of the IPO. What comes after the IPO, everyone knows is a huge push to legitimate the valuation. Facebook will invest heavily in expansion and diversification of its revenues.
Facebook will more than likely move into search but in a rapidly expanding market as more of the world’s population moves online and with more novel recommendation than Google can boast. It might move into devices. This might be a necessity but it is difficult to see that as anything other than what might turn out to be a profitable distraction.
Underlying all this is a competence that few other companies can approach – very large scale server farms with unprecedented data handling and interpretation.
So what is Facebooks’s ecosystem? It is all the companies that use it as platform to deliver product (something MySpace never had), it is the marketing ecosystem – the new generation of SEO/SEM experts who see Facebook as a sufficiently large population to justify total focus, and it is the technology ecosystem that is learning a new trade – massively scaled human interaction. And it will expand that ecosystem into search and contextual advertising, delivered increasingly in a mobile environment.
Both Google and Facebook are platform and ecosystem businesses, essentially platforms that enable a large number of partners to build businesses and prosperity through highly scaled partnering. TO assume they will disappear is to assume that the whole ecosystem will falter. No doubt ecosystems will and in Google’s case there is some new learning for Page if they are to grow substantially outside search. But these are not weak businesses. They are different business, different objectives, different models. We’ll be learning from them for years to come.
You might also like to read Why Amazon Succeeds, a look at the platform and ecosystem at work at Amazon. Or a look at the new leadership qualities needed in platform businesses.
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