Picture the scene: a two-person team of entrepreneurs, made up of a business head and a developer, had pivoted their original business into the hottest photo sharing platform in the world. With growth of over 400% in its first twelve months it was snapped up by one of the giants of the web for a mouthwatering price, despite never having turned a dime in profit.
Or how about this: created by a team of Northern Europeans, but based out of London, it was the coolest social music product on the scene. With a free streaming product, and social built into its roots, it was set to take on the music labels.
So, did you see what I did there? Whilst I could have been talking about Instagram and Spotify (both currently valued at, or, in Instagram’s case, sold for, around $1bn), I was, in fact, talking about flickr and last.fm.
I started thinking about this yesterday when, having logged into last.fm for the first time in some while, I was met with a message suggesting that I change my password due to a suspected security breech.
Now, I may not read every single tech-blog out there, but I do tend to keep up with many of them, and this story hadn’t even crossed my radar. Yet, when the same thing happened to LinkedIn, it made the mainstream press.
And today, as I’m writing this, the entire last.fm site is down. If the same thing happened to Facebook, or Twitter, you could probably be forgiven for thinking that the world had ended.
The slow decline of last.fm, from being the coolest kid on the block, via a purchase by CBS, to a place most people don’t even notice when it disappears, alongside the much reported travails at flickr (note: the article linked to includes some rather adult language), highlight that the ever-shifting waters of the internet can be just as treacherous for natives as for the types of companies we’re used to seeing as its victims, such as newspapers and record labels.
So, what can we learn from these sites’ shifts from darlings of the Web 2.0 crowd to social media also-rans?
Firstly, with free services, the only things stopping people leaving is either high levels of interaction, or low levels of energy — in other words, they either need to be really excited about using your site or app, or too lazy to use someone else’s. And, as I’ve said before, this matters just as much for the companies using these platforms to market to their users, as the actual site or app owners themselves.
Because whilst multi-screening means that we can now tweet at the same time as watching TV, or update Facebook whilst having lunch, there are still only 24 hours in the day and, as we move towards the “web of want,” those services we use tend to ask more of us. This will, I think, eventually lead to polarisation around certain services as a mixture of interaction and ennui locks other players out of existing sectors.
Secondly, you need to stay ahead of the curve, but not too far ahead, mind. Flickr lost out because it took its eye off the ball and lost out in mobile at the same time as Yahoo! took its eyes off of Flickr and failed to realise what it had (at exactly the same time that Facebook was building its entire platform on photos).
Last.fm’s demise was probably down to something similar — a missed opportunity in mobile, possibly caused or exacerbated by the incomprehension of a less-flexible parent company. Having said that, whilst a recent article provides a nice retort to the common-held that SecondLife was a failure, it also highlights the fact that being too early to the game can be just as limiting to growth as coming too late.
Traffic Trends at Flickr.com
Of course, what’s really frustrating is that in both these instances, even ignoring the obvious balls that were dropped, there were so many other opportunities that weren’t properly exploited.
Last.fm moved to an ad-funded model, in a world where ad margins are dropping to the point that Microsoft has just had to write-off $6bn, with no free listening available in some markets due to the fact that the ad revenues couldn’t cover the licensing costs.
All this despite the fact that, considering that it’s owned by a record label, it could have done much more interesting things around discovery and true integration into CBS’ other products.
And in the same way, Yahoo! really has no excuses for not having cracked social search years ago, considering that, in flickr and delicious, it had two of the biggest sets of user-generated tags on the planet.
Finally, flickr, last.fm & aQuantive (the company Microsoft has just said isn’t worth any of the $6bn it paid for it) all go to show that an exit, whether through sale or IPO, really doesn’t mean you’ve arrived.
Companies like SAS and, indeed, SecondLife, show that there’s more to business than a quick buck. Hopefully the likes of Facebook, Instagram and Spotify won’t find out the same thing.
So, in conclusion, whether you’re a marketer, developer or a brand owner, it’s important that you concentrate on the product, not the exit. Think about whether your product would be better served with a business model that doesn’t rely on advertising.
Don’t sit back and believe the hype about the latest app or platform — get out there and test it, but only when the time is right.
You don’t want to be the first one to join, but you sure as hell don’t want to be the last, unless all you’re looking to do is turn out the lights.
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