The Social Media MBA Blog by Karl Long

One of the things that struck me recently as I was teaching a class in Blogging and Social Media at San Francisco’s Academy of Art University is that whatever technology I was teaching about might not be here next year. I tried to take an approach where I didn’t teach tools so much as much as tried to demonstrate what creative and amazing things people were doing with the tools. I was trying to teach these guys how to be curious, creative, and to think critically. When I saw this video today it just slammed that fact home.

Things are changing at such a rapid pace, and it’s not just technology. Technology and specifically the web has become a ‘culture accelerator’ or a ‘culture globalizer’. Just as Television accelerated change in culture across America, the internet is accelerating change in culture around the world. The developing countries are in many ways like America was in the 50’s. Lots of new technology, new concepts of free time, and disposable income.

I’ve heard people describe developed nations moving to a Post Consumerism society, and I think the hybrid economies talked about by Lawrence Lessig and the cogitative surplus described Clay Shirky are examples of a Post-Consumer thinking (I’ve written further about those concepts here). Now, it is unrealistic to imagine that developed nations have fully become post-consumerist society but it is happening. But my question is, how quickly will the developing nations move beyond the new consumer culture that is being foisted upon them and adopt a more meaningful model of creativity and consumption? I hope the culture accelerator does that otherwise our planet is in even more trouble than it already is.

Executive summary: I think people should pay a subscription fee based upon how many people they follow.

I’ve been thinking about an appropriate business model for twitter for a while now, it seems like a fun intellectual business problem to wrestle with. Almost all of my ideas had something to do with the amount of followers a person had, something that blended subscription, pro features and or advertising.

I realized last night that it might be better to have a model that charged people based upon the amount of people that they follow. I think a wonderful side effect of this would be to provide an economic incentive to only really follow people who you are interested in, as opposed to playing the twitter game of ‘you follow me and i’ll follow you back’ game.

Here’s the idea, keep twitter free and clear for some number of people that you follow, say 500 or a 1,000, but after the first thousand charge some sort of subscription fee.

The benefits of this are first you don’t penalize people who are very popular, and who actually attract people to use the service. Even better you discourage MLM spammers who seems to be invading this service and gaming the ‘you follow me and i’ll follow you back’ game.

What do you think? I get a huge amount of value out of twitter and am totally ready to pay, what do you think? How much would you pay per 1,000 people you follow on twitter?

So what does Bernie Madoff’s Ponzie Scheme, the financial services industry, the housing market, and Facebook have in common? They all look(ed) very attractive as they were/are growing, in other words rapid growth can obscure real value, as long as there is continued growth.

My prediction, is more an imperative and that is “The Flight from Growth to Value” and this is not just in social media, but also in business in general. 2008 demonstrated quite starkly that growth often obscures lack of ‘value’. This was demonstrated by the housing bubble, then the dramatic collapse of the financial services industry, then by the Bernie Madoff ‘ponzie’ scheme. All 3 of those dramatic collapses demonstrate how growth can obscure real value as long as there is continued growth. One of Wall Street’s greatest failures is it’s singular focus on measuring and rewarding growth, Wall Street IMHO is part of a systemic, management, and cultural problem that focuses our measures of business success on the wrong things. In fact the term ‘bubble’ is a fantastic term for describing this blind belief that somehow growth is the key, because as long as the bubble is growing all the participants feel like they are part of something valuable, this is of course the essence of a ponzie scheme and most multi level marketing businesses.

What has this got to do with Social Media? well I think there are several social media companies who are valued primarily due to their amazing growth, and it’s obscuring what the real value is that they create. The problem in social media is that it amplifies network effects so brilliantly that growth drives more growth, now this is great if you have a business model that creates and captures tremendous value, but if it doesn’t your burn rate goes up and revenue is always just round the corner… until you stop growing and then it collapses. In the end this is the definition of a bubble, everyone wants to join in as long as it’s growing.

It is when bubbles burst that winners emerge and they are generally not the ones you expect, the phrase from the first .com bubble was ‘Even chickens can fly in hurricanes’, and that’s the case with a lot of social media companies now. I think facebook is at great risk of collapsing if it doesn’t figure out what the real value is that it creates and figures out a way to capture it. Once myspace figured out it’s real value was in connecting bands, growth became less important than doing that better.

Two great examples of social media companies with business models that create value are Threadless.com and Yelp.com. Threadless was started in 2000 for $500 and by 2006 were doing 6 million in revenue with 11 employees (6 of them part time), this year they are on target to do 40 million+ in revenue.

Here’s my presentation that I gave at Inverge last year, it’s called “employing your customers for fun and profit” and it illustrates a lot of the ideas I think are important in social media business models, ie. it is the users/customers that create value, you just have to figure out how the help your users/customers do it better.

Lot’s of other people have put together some interesting predictions for what 2009 might hold for the Social Media space and Peter Kim has assembled a good many of them on his blog here. He has posted them to Slinkset where people can vote on them and you can even submit your own. Trendspotting also put together this excellent presentation that nicely illustrates some of these predictions. Some very interesting people contributed to this like Charlene Li, David Armano, Ann Handley, Rohit Bhargava, Read/Write Web, Ben McConnell, Jeremiah Owyang.

Now, some of the people on the internet that I believe are some of the most important thought leaders did not put any predictions about 2009 so I will urge you to go and listen to and read a couple of recent interviews with them. All of these interviews happened in December and if you dig into them and triangulate the ideas I think you have a pretty interesting framework to think about what’s going to happen online in the next 5 years, and to analyze existing businesses in the social media space.

1. Tim O’Reilly talks in depth about Social Media and value on NPR’s Science Friday
2. Clay Shirky’s recent interview on the Columbia Journalism Review
3. Lawrence Lessig on NPR’s fresh air talking about his new book : Remix: Making Art and Commerce Thrive in the Hybrid Economy

Tim O’Reilly is very active on twitter @timoreilly and I suggest following him, and even though not very active you should follow Lawrence @lessig and Clay @cshirky as well…. and you can follow my fractured though process there as well at twitter.com/karllong

Update:
I posted this to twitter and got some interesting questions, one in particular got me thinking from @warrenss

@warrenss @karllong Nice work and a great deck! It will be interesting to see what winners emerge.

And my response:
@warrenss two winners (i’ve expanded on the tweets considerably)
1. platform providers that enable people & companies to connect with, and enable niches to create value ie. twitter, ning*, etsy, google, yelp.com, myspace, Youtube, Wordpress, crowdfactory, Etsy, SocialText, 37signals, Digg, TechMeme, Wikipedia, Stubleupon, Craigslist, 4chan.org Flickr, Dare I say Match, OkCupid, linkedin, Xbox Live, Mrtweet maybe Facebook, Nokia, OpenSocial.

2. companies and people that connect with either niches or lots of niches using some subset of the above tools ie. Dell, Apple, Nikon, Nokia, Patagonia, threadless, BoingBoing, etsy, Netflix, and personal brands like Barack Obama, Arianna Huffington, Shaquille O’Neil Ffffound, Gary Veynerchuck, Chris Brogan, Scobleizer, Kevin Rose, Michael Arrington, Hugh McCloud, Jeremiah Owyang, Mashable, Charlene Li, Zefrank, 4chan, Read/Write Web, (you may not know all of those personalities/pseudonyms and nor should you, but they are examples of people who are using social media tools to build incredible influence in their particular niches/communities).

*Ning’s ridiculous business move in shutting down it’s ‘adult’ communities due to concerns about advertisers, they have obviously not seen how much of a market there is for advertising in the ‘adult’ market.

Recently Kmart hired some popular bloggers and twitter personalities to promote a competition they were running. Essentially the bloggers were all paid $500 to promote a $500 gift certificate to Kmart. Lots of questions about whether this ethical or breaking some kind of sacred blogger covenant to not sell out. In particular posts from Chris Brogan and Jeremiah Owyang on this topic are not only interesting, but have generated an enormous response in the comments. Technosaler has a different take on this and even takes Jeremiah to task for editorializing as an analyst.

This controversy is absolutely baffling to me and IMHO people are asking the wrong questions especially if they have any interest in business on the web.

First of all the competition was a brilliant and simple idea. How to make an idea spread on twitter with a very minor incentive, the ‘chance to win’ something. In this case the motivation to have a chance to win a Kmart gift certificate drove people to rebroadcast that message to their networks. So brilliant the idea, I copied it the same day and posted this to twitter:

“@karllong is giving away 10 x $25 gift certificates for http://threadless.com - just RT this to enter, will tweet the winners ”

Now I only had 1,800 followers at the time and the result was nothing short of extraordinary. That message got retweeted or rebroadcast over 500 times, that means well over 25% the size of my network took an action to rebroadcast my message to their networks. The very first person to RT was @Coryobrien and he had 1200 people following him so I almost doubled my ‘impressions’ on the first hop. I also added 250 people to my twitter network.

Why did this work so well? Probably because I write the number 1 t-shirt blog on the internet (according to google) so my personal brand is totally enmeshed with t-shirts, so it’s totally appropriate for me to promote T-shirts.

To be quite honest I think personal networks are the future of advertising, so forget the ‘controversy’ and focus on the revolution people.

Izea is actually on the right track with their business model which is essentially to empower people to profit from their ‘influence’ or networks. We are the media, and if we are put in charge of what we promote, on what terms, and for companies we believe in, there are few bloggers who will not participate. If patagonia sponsored me I would happily pimp their products for cash, I love what the company does. They have 30 open positions a year (non retail) and they get 30,000 resumes for those positions, people are inspired by what the company does and stand for. I would totally sell my influence to promote companies that I firmly believe in. Sell out, but do it selectively and on your terms.

if you think this idea has merit go and VOTE at Change.org. The top 10 ideas are going to be presented to the Obama Administration on Inauguration Day and will be supported by a national lobbying campaign run by Change.org, MySpace, more than a dozen leading nonprofits after the Inauguration. So each idea has a real chance at becoming policy.

Oil at its 22 month low and America is heading to $1.25 a gallon gasoline, yet as recently as May, Chrysler was offering to let consumers “lock in” $2.99 gasoline for 3 years. Such is the foresight of our car companies, and an interesting indicator of what consumers were not only willing to pay for, but was actually an incentive. There is also indication that more Americans have continued to adopt public transportation at a record rate. Oil imports rose by a record amount during October assuring continued pressure driving gas prices further down.

I informally polled a group that we should tax gasoline to stabilize gas prices and generate revenue, and got some surprisingly positive responses, enough where I thought it was worth thinking about some more. I actually proposed it to be a flexible tax that essentially kept gas prices at a stable level that consumers were ok with.

I think the key to taxing gasoline use the proceeds to fund research into alternative technology/fuels and manufacturing technology that the American car industry (and maybe others if they pay) can share and use to build new American cars. We should use the money to fund the enormous effort it will take to retool and modernize the entire American car industry. Our car companies could win again but overhauling, rethinking, and rebuilding the American industry is going to be a Herculean effort.

Not only would taxing gasoline drive revenue to fund this effort but it would also serve to help us as a nation conserve. Surely conserving such valuable and strategic non-renewable resource is a patriotic act, especially if it went to fund growing a technological and innovation base right here.

I believe we need a management change and we need to hire visionary leaders, change agents, that can help lead an industry. We need the equivalent of Tom Peters or Steve Jobs to help change the industry. We need someone to help us create insanely great cars.

The car industry is so critical to the future industrial competitiveness of our country we need to involve leading thinkers and innovators. Michael Porter, Gary Hamel, Mark Cuban, and C.K. Prahalad could advise and facilitate the development of long term strategy for the industry ecosystem. Hire Guy Kawasaki as the evangelist. Involve Steve Jobs and Johnathan Ives in rethinking design. Involve Clay Shirky, Tim O’Reilly, and Lawrence Lessig work on how technology, open source, and creative commons can be applied in an industry. Put the guys from top gear as head of product testing You get the picture hire superstar business people and innovators to turn this around not bureaucrats, sycophants and lobbyists.

As a tax payer I would invest in car companies to tide them over until you institute a gas tax if I had confidence they were going to hire leaders and not managers to turn these companies around.

I’ve added this idea to Change.org so please go there and comment, criticize, and vote. We don’t deserve failed leadership in such a critical industry as transportation, it is part of our competitive advantage as a nation. It’s very patriotic to conserve Oil.

I was inspired to write this after seeing the amazing case study from the team that worked on the Obama identity, which could well become one of the most iconic identities in our time. What struck me was the approach was less like the classic ‘brand as a monolith’ strategy, and much more ‘brand as a canvas’. Deliberate or not, the brand gained it’s own life in social media as people took it and mashed it up.

In a prior life I worked on several brand identity projects, and I learned a lot about the value of creating a true identity, as opposed to a Logo. I also learned a lot about the ideas behind branding, where it came from, and how it eveolved into the discipline it has, I was even inspired to put this presentation together called A Brief History of Branding (download the pdf ) to try and put into context where branding as a discipline came from (hint industrial revolution, broadcast media, mass production and mass markets. Needless to say with the changes that the internet and social media has wrought branding as a discipline might need to re-evaluate it’s methods and gospel.

Here’s the teams blog post

I just got back from reading another brilliant post from Seth Godin, he always writes such great stuff, but i’ve never seen such a stark lesson in all my life of what NOT TO DO

Here’s a quote from his article titled Lesson learned from my biggest business mistake

My biggest mistake (at least in terms of income avoided) was not believing in the world wide web in 1994.

It’s not like I didn’t know about it. I had written a book called “Best of the Net”. I’d even written the cover story for some now-defunct magazine on how to surf the internet. But in those days, the Net referred to Archie and Veronica and the online services… there was no real browser, no search engines to speak of, just a bunch of conferences and some guys in the Valley.

Not only did I ignore it, I actively ignored it. I didn’t register hundreds of domain names or build out the website for Yoyodyne beyond much of a placeholder. Instead of expanding my online game show/promotions company into the web, we focused on Microsoft’s Chicago service and Apple’s eWorld. Sigh.

Instead of building a search engine, I wrote a book called The Smiley Dictionary. Earnings to date: $10,000 or so.

I’m going into all this painful detail to let you know what an idiot I was. How many clues were just sitting there, how much access I had, how deliberate I was in ignoring them.

Great point right? Well here’s the lesson, Seth is also ignoring Twitter, my advice is, get on whatever Seth is ignoring

Now Seth’s got a great business, is a sought after speaker, and sells a shit tonne of books so who am I to give him advice.

For me twitter is the ability to connect with some of the leading thinkers and business people who are changing the web. If you want to learn something start following:

http://twitter.com/cshirky
http://twitter.com/johnbattelle
http://twitter.com/timoreilly
http://twitter.com/stoweboyd
http://twitter.com/charleneli
http://twitter.com/jowyang
http://twitter.com/armano
(is not exhaustive, but that’s a good primer)

for other inspiration follow:
http://twitter.com/richardbranson
http://twitter.com/gladwell
http://twitter.com/hodgman

oh and try and follow Seth, maybe he’ll get the hint
http://twitter.com/sethgodin

it’s an interesting experiment right now, but there is tremendously powerful business models that can be built on Twitter, check out this great post from O’Reilly Radar

UPDATE: I had originally written this specifically about MLM spammers, but in the end it’s spam that puts twitter at risk. Twitter is a small company 20+ people with some great funding but no real revenue model yet. As we see spammers and hackers have an incentive to use twitter for very destructive exploits and if they have even a minor ROI they will continue to try to exploit this. Twitter on the other hand is going have to invest money in fighting these exploits when IMHO money could be better spent on creating a sustainable business model. I had proposed in a later post that some kind of business model where people were charged based on the number of people who you follow, but another option could also be to charge people to send DM’s. Even a charge of $10 per year to send some number of DM’s would kill spam dead, it only works if there is no incremental cost for sending messages.

more animals

This post is the culmination of a long experiment with twitter and I have bad news for twitter, MLMs (multi level marketers) will kill it and so will anyone else with a business model that can extract value from exponentially growing network… so any blogger.

So I’ve built up quite a following on twitter, mainly due to my popular T-Shirt blog Tcritic.com and as of two days ago I had 1,800 followers on twitter. Now that’s a pretty respectable number but of course pales into comparison with people like Scoble who has 45,000 followers, and Garyvee with 25,000 followers, or Kevin Rose, founder of Digg with 77,000 followers. And forget about it when Twitter gets mainstream which it will as soon as kids realize Brittney is on there with 10,000 followers and sports fans realize Shaq is there with 18,000 followers . Anyway, the point is i’ve got a pretty small network compared to these guys.

So a couple of days ago I saw a tweet about a competition to win a gift certificate for KMART, all you needed to do to enter the contest is RT (retweet or rebroadcast) that message to your network of followers. Simple idea, so I tried it using $25 Threadless gift certificates (I get $3 to spend at threadless every time I send them business and I don’t need more T-shirts) and posted this (note that I included my name in the message so people would rebroadcast that:

@karllong is giving away 10 x $25 gift certificates for http://threadless.com - just RT this to enter, will tweet the winners

I then had another window open at search.twitter.com searching on my name and watched as people rebroadcast the message, again and again and again. In the end the message was rebroadcast by 500+ people to their networks. The first person to RT this message was CoryObrien who has 1,200 followers so I almost doubled my reach with the first step. From an impressions or click through standpoint I have no idea the actual conversion rate, I had included a link to threadless.com in my original tweet and chose to leave the url long so people could see what the link was.

Luckily I do usually shorten my url’s that I post to twitter using cli.gs because I get ongoing metrics on my links I share and my click through rate is well over 2% for just general FYI links I put out there.

Another interesting aspect of this is that through what was essentially spamming my network with an “offer” I added about 250 new followers, so I increased my network and influence by well over 10%. Those are some pretty good numbers, so I got 250 new followers for $250, and they are also people who like TSHIRTS so will be open to more offers in the future (don’t be scared i’ve grown my network with integrity and substance so i’m not planning on strip-mining my network, I want to create more value

So on to the MLM, well apparently my recent 10% growth in network attracted a deluge of new followers who were not human beings but actually spam bots all promoting a video of Mike Dillard who was going to sell me some “marketing secrets”. And guess what, that spammer is also on twitter and he’s got twice as many followers as me, even his spam bots are getting connected and following each other and gaining perceived influence. Seriously, he doesn’t have any marketing secrets except how to make money from an exponentially growing network. Twitter defeats regular spam accounts with ease, but it’s going to have a much harder time defeating ‘profitable networks’ of people that move in. I imagine with the economy the way it is MLM is looking like a viable option for a lot of Americans.

The problem with spam is that it only needs an incredibly low conversion rate, and some UC Berkley students found out when they hacked the storm botnet it does have a conversion rate.

So what should the Twitter business model be? well IMHO it should be a mechanism to help people value their network, give them a personal rate card essentially so companies can see how valuable and connected some of these people are and let them work with companies they love and believe in. Surely Patagonia should be sponsoring Richard Branson on his latest voyage where he’s live twittering from his boat (who BTW rewarded his 2,000th follower to spend the day with him). Anyway, you get the picture, you could add pro-accounts, real metrics on conversion rates, reach and influence, and who you influence.

BTW not for nothing, but John Battelle with 4,500 followers (author of the book Search) the other day tweeted this:

I can say this: Google is very, very focused on indexing Twitter. VERY FOCUSED. http://snurl.com/774g5 [www_google_com] 5:40 PM Dec 4th from web
johnbattelle

and I can concur if you do a search for karllong is giving away 10 x $25 gift certificates for http://threadless.com - just RT this to enter, will tweet the winners

That was only two days ago!

In this fascinating interview on Charlie Rose, Lawrence Lessig provides some interesting comments about “hybrid economies” where companies co-create value with their customers. As he says some companies, mostly new and small, are already adopting this hybrid economic model, but bigger companies in the future will be transformed by this.

Most companies look at what consumers create, co-create, and share with the world as some kind of free resource to be exploited in what ever way they can, but the winners in the future will be the companies that can create ecosystems in which all the participants are valued, rewarded, promoted, and empowered. Companies are going to increasingly have to treat their customers as contributers and stakeholders in their business, and the concept of where a company begins and ends will blur.

Social Media is the engine behind this massive and slow moving change and for most companies change is not something that can be avoided. Anyone who thinks that social media is about influence, popularity, or an audience is sorely mistaken and business models built on that will be shaky at best. Social media provides the tools to empower and lead a legion of people who believe in your vision, be they customers, employees, partners or competitors, the opportunity right now for all companies is to be a change agent for your industry, are you up for the challenge.

BTW this was the topic of a recent talk/presentation I gave at Inverge and the Social Media Marketing summit, it was titled “Employing Your Customers For Fun and Profit”, I hope to have video of that soon. I’ve had some companies express an interest in having me come in and do the presentation for them and I’m happy to share it, time permitting.

Anyway, don’t just take mine and Lawrence Lessig’s word for it, check out these books if you are interested in this transformation of business.

The Future of Competition: Co-Creating Unique Value with Customers by Prahalad & Ramaswamy

“web-empowered consumers will usher in “a new industrial system” characterized by “co-creating value through personalized experiences unique to the individual consumer.” Under the new regime, headstrong consumers will “seek to exercise their influence in every part of the business system,” and companies will accommodate them by, for example, allowing them to design their own individualized cosmetics and houseboats (an innovation whose benefits include “emotional bonding with… the company” and “a greater degree of self-esteem”).”

Remix: Making Art and Commerce Thrive in the Hybrid Economy by Lawrence Lessig and it’s associated blog page here

Here Comes Everybody: The Power of Organizing Without Organizations by Clay Shirky

Also watch this video of Clay at the web 2.0 expo where he puts into describes the massive cognitive surplus that enables huge projects like Wikipedia to be created, and how much of it is available

Related: Kaplak Blog has an excellent write up of the Rose/Lessig interview as well, worth reading.

Also follow Lawrence on twitter.com/lessig Clay Shirky at twitter.com/cshirky and me if you like at twitter.com/karllong.

There are a lot of interesting things happening on twitter, and amazing connections being made. I’m connecting with CEO’s, entrepreneurs, authors, producers and adventurers, when I started following Richard Branson he only had 400 followers and he followed me right back. The opportunity, as I see it, is to connect with people who inspire me, and to try and provide some kind of value back to the people that follow me. Anyway, I’ve been thinking for a while that some of my tweets (maybe of others as well) are worth capturing on my blog, nuggets that I would like to discuss further, seeds of ideas if you like. I was thinking I’ll just pick my fav 10 or so in a week and post them as a tweet digest. I’ve avoided the auto posting of tweets as most of them, to be quite honest are probably totally irrelevant.

The genius of google, it connected people with ads when they were searching, the genius of twitter is it connects people when they are ready

(BTW that is exactly 140 charicters with no extra spaces or punctuation)

#Advertising - TVB predicts National TV Spot ad spend declining by 11.5% to 15.5% in 2009 http://cli.gs/mEbMvZ

“RT: @don_draper [out of character]: Wanted to tell you all first - I’m officially done tweeting as Don will be handing the account to AMC.”

(RT is twitter short hand for ‘retweeting’ or quoting someone else’s post or tweet)

“The story behind the Mad Men twitter experiment http://cli.gs/s2EGA4 thanks @don_draper “

“if you watch poker or bbc america on TV in the US you will have access to some of the worst advertising ever experienced by a human being”

” @stoweboyd LOL just read the headline “Karl Long Batters The Economist” http://cli.gs/YhZ4aL “

“Ha ‘Despite a lack of expertise, more than 67% report they will increase their social media advertising budget in 2009′ http://cli.gs/X4bbvT “