Ng: Winner takes all

Thursday, June 30, 2011

IN THE information and communications technology (ICT) industry, as with most industries for that matter, being the industry leader makes the company so much more valuable.

It’s a winner-takes-all culture as the industry leader can easily more enjoy the benefits of setting the standard.

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Google derives its huge valuation from being the leader in search. Microsoft derives its valuation from being the leader in desktop operating systems and office software.

Ebay, on the other hand, is valued as top auctions site while Amazon is the number 1 online store.

What is the value of being no. 2? Not that much. As I remember in a quiz that we had, everybody knows Mt. Everest is the tallest mountain but almost nobody can name the second tallest. We know Edmund Hillary and Tenzing Norgay were the first to scale Mt. Everest but we don’t almost always know the second to do so. We know the spaceship and the team that made the first trip to the moon, but the second trip is hardly mentioned.

Of course, number 1 processor player Intel is valued way more than AMD, its distant second competitor.

This is also the case in social networks. Facebook is now valued at an estimated $70 billion, being the number 1 social network with close to 700 million members. Which is second? MySpace.

A few years back, MySpace was number one with over 100 million members. Unfortunately, it has been declining since and last month, according to research firm Compete, scarcely 30 million were active on the site. That shows in the valuation. In 2005, News Corp. purchased MySpace for $580 million. Now it was announced that News Corp just sold it for about $35 million. That’s a $550-million loss!

How about the third placer? That would be Bebo, which was started in UK in 2005. The name is an acronym for Blog Early, Blog Often. In three years, it had members of about 40 million and was number 1 in the UK and number 3 in the US. At that time, the social networks market was being heavily-contested and AOL paid $850 million in cash to buy it.

Scarcely two years after buying, AOL was reported to having been forced to sell it because it continued being a distant third. It sold the site for less than $10 million. That’s almost a $840-million loss in two years!

It seemed that social networks as a category are here to stay for some time and Google has been trying to come up with its own offerings. A few years ago, Google came out with Orkut but this did not succeed. It launched Google Buzz but apparently it did not take off as expected either. Yahoo tried it with 360 and that did not fly either. Now Google is trying with Google Plus.

It’s still on trial and reportedly with a small number of users. It is still by invitation and I am still waiting to get one. Initial reviews indicate Google is learning from past mistakes but I will write about it more when I try it.