How Facebook Used White Space To Crush Myspace

Innovation

from the knowing-what-you-know-now dept

Mike talks a lot about disruptive innovation, about how — despite all outward appearances — newcomers can compete and even usurp the establishment (which are also called “entrants” and “incumbents” by Clayton Christensen). The examples are plentiful: Microsoft Money was outfoxed by Intuit’s Quicken, Nike’s pre-loaded iPhone app was leapfrogged by RunKeeper, Blockbuster was run into the ditch by Netflix, Kodak was surprised by the swift adoption of digital cameras… the evidence shows again and again that the size of the company and vastness of its resources do not necessarily guarantee its market dominance.

Gerd Leonard tipped me off to a great Forbes article by Adam Hartung called How Facebook Beat Myspace. For anyone who used both of those social networks, the grievances against Myspace are easy to list: too many ads, irrelevant ads, poor programming leading to browser crashes and typographic eyesores, letting users customize their profiles to such a degree that profile pages would either take too long to load (because of 50+ 10MB images) or the colors were simply too garish to view without getting a headache. Myspace, for all its fantastic social networking tools which had been hitherto unavailable, still had serious design flaws, and Myspace users saw Facebook as a better run and cleaner social network. That’s why we all migrated.

Hartung bypasses the banalities of the user experience to examine the differences in business management approaches at Facebook and Myspace. He begins by rewinding the clock to remind us just how popular Myspace was at the peak of its success. If you remember, Facebook was a total nobody at that time. And then, something went awry… a change in the wind:

What went wrong? A lot of folks will be relaying the tactics of things done and not done at MySpace. As well as tactics done and not done at Facebook. But underlying all those tactics was a very simple management mistake News Corp. made. News Corp tried to guide MySpace, to add planning, and to use ?professional management? to determine the business?s future. That was fatally flawed when competing with Facebook which was managed in White Space, letting the marketplace decide where the business should go.

“White Space” is a relatively new management term that Hartung advocates in his book, Seizing the White Space. Wikipedia describes White Space as the area in a business’ hierarchy that exists between functions within the hierarchy, much like the unused space in your kitchen cupboard. White Space is the “handoff between functions where misunderstandings and delays occur”, where “things often fall between the cracks or disappear into black holes”. Hartung also calls White Space “a location for new thinking, testing and learning” in order to “evolve new formulae for business success free from the existing Defend and Extend culture.”

Hartung then offers up the meat of his argument — that Facebook conquered Myspace not because Facebook offered better features, but because it looked to its users for ideas and then created those features:

…the brilliance of Mark Zuckerberg was his willingness to allow Facebook to go wherever the market wanted it. Farmville and other social games — why not? Different ways to find potential friends — go for it. The founders kept pushing the technology to do anything users wanted. If you have an idea for networking on something, Facebook pushed its tech folks to make it happen. And they kept listening. And looking within the comments for what would be the next application — the next promotion — the next revision that would lead to more uses, more users and more growth.

And that’s the nature of White Space management. No rules. Not really any plans. No forecasting markets. Or foretelling uses. No trying to be smarter than the users to determine what they shouldn’t do. Not prejudging ideas so as to limit capability and focus the business toward a projected conclusion. To the contrary, it was about adding, adding, adding and doing whatever would allow the marketplace to flourish. Permission to do whatever it takes to keep growing. And resource it as best you can — without prejudice as to what might work well, or even best. Keep after all of it. What doesn’t work stop resourcing, what does work do more.

Contrarily, at NewsCorp the leaders of MySpace had a plan. NewsCorp isn’t run by college kids lacking business sense. Leaders create Powerpoint decks describing where the business will head, where they will invest, how they will earn a positive ROI with projections of what will work — and why — and then plans to make it happen. They developed the plan, and then worked the plan. Plan and execute. The professional managers at News Corp looked into the future, decided what to do, and did it. They didn’t leave direction up to market feedback and crafty techies — they ran MySpace like a professional business.

And how’d that work out for them?

The tendency to plan for any daring enterprise is irresistible, and critically necessary in many cases. But Hartung’s point is that innovation is a different beast from other types of business management. When you choose to innovate clever, competitive solutions to new market conditions, you have to be open to the possibility that you might create a newer business model that cannibalizes or “devalues” your current product or service. And so we arrive at the so-called Innovator’s Dilemma — do you tear down the walls of your temple to build a better temple? Or do you let someone else tear down your temple so they can build a better one? When you’re an incumbent business like Nike, Microsoft, Blockbuster, or Kodak, you probably have so much financial investment in your legacy business model that you would rather turn a blind eye to all those young upstarts who seem to understand the market much better than you. After all, you have the experience, and they don’t, right? Your staff went to Harvard and Duke and Stanford, right? Aren’t your Excel spreadsheets of ROI projections your best protection against unexpected market reversals? You’ve produced 100 movies and they haven’t, so what could these whippersnappers possibly know about the business of filmmaking?

Planning is of course essential for many parts of business but, Hartung notes, you really can’t plan what people are going to respond to the most, and Zuckerberg understands that at a fundamental level. I once read an interview where the reporter noted how Zuckerberg constantly asks his colleagues, “Knowing what you know now, what would you do differently? And how do we get there?” This explains why Facebook revamps their site every six months… but also why Facebook continues to compete (and very effectively) with looming competitors like Twitter. (In passing, Netflix has also thrived from constant experimentation and listening to its users. Consequently, new features pop up on Netflix all the time that improve their service… and customers remain loyal because of that.)

But this point should not be glossed over. At the heart of Facebook’s success is Zuckerberg’s willingness to “destroy” Facebook to make it better and more competitive. Facebook was once the entrant, and now it is the incumbent and will stay the incumbent for as long as Zuckerberg retains the attitude of an entrant. Incumbents face a choice of abandoning much of their expensive infrastructure to adapt to a changing market, whereas entrants face no such choice — quite the opposite, entrants have nothing to lose. They can try anything. Facebook crushed Myspace because Zuckerberg was focused on growing the user base by providing the things users asked for, rather than only providing the things that would grow the company’s bottom line. Zuckerberg’s second question, “How do we get there?” illustrates how he’s constantly experimenting and building bridges from new and radical ideas to the current and static ideas. Myspace, being too preoccupied with planning, ROI, etc., never fully understood how important adaptability was to their business model.

Hartung concludes with the most important point of all:

MySpace demonstrates a big fallacy of modern management. The belief that smart MBAs, with industry knowledge, will perform better. That “good management” means you predict, you forecast, you plan, and then you go execute the plan…. Big failures — like Circuit City, AIG, Lehman Brothers, GM — are full of extremely bright, well educated (Harvard, Stanford, University of Chicago, Wharton) MBAs who are prepared to study, analyze, predict, plan and execute. But it turns out their crystal ball is no better than — well — college undergraduates.

There’s an element of ego in play here — legacy businesses are rarely humble enough to admit they can still learn from the newcomers, and that’s to be expected. It’s a convenient reaction to view emerging market developments as fads, gimmicks, or flavors-of-the-month and, as such, unworthy of diluting the company’s resources by devoting extra time, money, and energy to research them. The fact is that many of these “fads” might very well be a waste of time and resources. By next year, they may have come and gone. And yet entrants view these “fads” with an open mind, and choose to tinker endlessly with them until the market reacts favorably to one of their experiments.

If anything, Myspace’s spectacular failure underscores exactly how important it is to listen to others regardless of their experience or educational background. Yes, of course, experience is a factor in lending weight to someone’s ideas, but good judgment is an equally important factor, if not more so. You needn’t have had any experience producing horse-drawn carriages to make a sound judgment about how obsolete horse-drawn carriages would be with the coming automobile.

Filed Under: competition, innovation
Companies: facebook, myspace