We are in the season of initial public offers (IPOs) for web companies. LinkedIn is in, Zynga is also there. Pandora and Groupon have since locked in and very soon the grand daddy of all, Facebook, will ring the bell. These are great companies especially in this age when they have helped to redesign how we live.
But one thing remains a big minus for these companies – they are Internet companies and the barrier of entry remains low for what they do. They cannot claim they have the capacity to lock customers as emergence of any new and better platform, they are gone. When you recall MySpace in its zenith and what Facebook is doing today, one can conclude that these companies while great, have one fundamental problem – they can be gone as the feathers of a bird! Customers are enjoying their platforms but they cannot lock them up. The best they can do is to build the network effect syndrome where the greatest defense is to have more people in your platform.
Consider this: it is very difficult for anyone to unlearn Excel just to do away with Microsoft Office. You are locked in because the person who sends you a file has done it in Excel and you need to open it with it. The same can be said of other products from Microsoft which is not an Internet company. They offer products that cannot be decimated by a click. You can say the same for Adobe. You are very sure that Microsoft and Adobe will be here for long. Can you really argue that for Zynga?
If you have that in mind and try to compare what happens for Facebook, you will agree that Facebook is great today, but there is no way It can claim that its huge size can lock up customers despite all the theory of network effects. It is about having a better platform somewhere else and in trickles, people begin to move.
The business on the web is easy since we do not need a lot of capital as the Internet has simplified a lot of things. The era of cloud computing ensures that we can get a company going and running in hours. Yet, as you put money in these companies, always remember that you are in a sector where most businesses cannot claim they have locked up the customers.
Yes, Tekedia acknowledges that the top 5% leaders in any web sector are secure by the advantages that come with size. In that case, Facebook, Zynga, Twitter and others are more protected when compared to those that are trying hard to survive. What that means is that if you invest in these elite brands, you are better protected since they dominate and that is essentially locking up customers. The clones or the followers may not easily say that.