Life on the Edge: Learning from Facebook

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As conventional ad placement techniques continue to yield disappointing results, many media companies are exploring the role of Facebook applications (BusinessWeek.com, 3/3/08) in promoting new movies or TV series such as Resident Evil and Parking Wars.

Sustaining the Epidemic

The low cost of entry, the proliferating applications, and the blurring of conventional boundaries between content and paid advertising—as advertisers and developers join up to engage users—more effectively create interesting business challenges. Much of the experimentation and innovation in Facebook applications focuses on that holy grail—"virality." How does a new application rise above the growing crowd of other applications competing for participants' attention? Developers must strike a tricky balance, promoting rapid dissemination while avoiding resentment over spamming.

The application ecosystem on Facebook is an epidemiologist's dream. Applications take off and spread like a flu epidemic but then, for most, usage precipitously falls off as participant interest shifts to the next "hot" application. How do application developers sustain participant interest and involvement? What are the design principles that promote sustained engagement?

As a broker working at the intersection of developers and advertisers, SocialMedia is in the middle of all of this. While serving the narrow broker role of matching buyers and sellers, the company also helps identify patterns for success within the application-developer ecosystem and works with advertisers to discover more effective ways to reach participants through applications. Developers and advertisers seek out companies like SocialMedia for advice and insight to catalyze the next wave of innovation. As an example of this broader knowledge-broker role, SocialMedia is hosting a workshop next month for its top developers to help them develop business plans to support their application development businesses.

So what lessons should more traditional companies take away from the early Facebook and SocialMedia experience?

Create more edges. The decision by Facebook to open up its platform to third-party developers unleashed a torrent of innovation that continues to expand. Thousands of developers are trying out ideas and learning from each other. Facebook participants benefit from a growing diversity of applications offering functionality Facebook would have never been able to develop on its own. By offering application developers easy access to millions of potential users, Facebook spurred broad innovation in a short period of time.

Provide better ways to connect at the edge. Brokers like SocialMedia attract diverse participants at the edge and provide mechanisms to catalyze new insight and share knowledge. Sure, developers and advertisers do business with the company because it helps to drive near-term economics through its advertising network. But in the process of interacting with SocialMedia and with each other in forums created by the company, they get more insight into what is working and what is not. The analytic tools used by SocialMedia help it to do pattern recognition and deliver even more value to the participants in its network.

Demographic edges are fertile grounds for business innovation. While older participants are a growing segment of Facebook users, younger participants are the early adopters of many of the applications introduced on Facebook. They are more willing to try new things and are much more likely to refer others to applications they like. Younger generations can be important catalysts for business innovation, both because they often uncover unmet needs earlier than older customers and because they are more willing to try a new product or service.

Experiment and iterate rapidly. The power of Facebook as an innovation platform is that it costs so little for an application developer to introduce an application and generate quick market feedback. This environment encourages lots of experimentation and accelerates learning. As B.J. Fogg from Stanford has noted, "Many crummy trials beat deep thinking." Wherever possible, executives should be creating platforms for which the cost of failure is minimal and the upside is potentially enormous.

Social, technologic, and economic are inextricably intertwined. Facebook succeeds because it satisfies profound social needs to connect and be acknowledged via an easy-to-use technology platform. It also carefully manages the economics of its business to avoid upsetting the social order. When it makes mistakes, as in its recent Beacon initiative, it is quick to step in to fix them. For its part, SocialMedia understands that the key to monetizing applications hinges on understanding and leveraging social dynamics to drive adoption and use of the application.

Rather than dismissing the social dimension of the edges of the Internet, executives would do well to understand that social interaction often precedes economic activity. After all, well before we had the World Wide Web, people were venturing online to participate in bulletin board discussions and in Internet Relay Chat sessions. As the early business pioneers step into this new social arena, they are pushing themselves to redefine applications and advertising in ways that could, over time, reshape much broader business arenas.

John Hagel and John Seely Brown are co-chairman and independent co-chairman, respectively, of Deloitte LLP's Center for Edge Innovation. John Hagel writes a blog at Edge Perspectives. Their monthly column, Innovation on the Edge, explores what executives can learn from innovation emerging on various forms of edges, including the edges of institutions, markets, geographies and generations. Sign up here for an RSS feed.