Sunday, October 15, 2006

Barrier to exit

A noteworthy "collateral" effect of the Internet is its ability to turn entrenched business positions upside down. As a consequence, thinking strategic approaches to business in a contrarian fashion and experimenting with all sorts of bizarre combinations of services has become the norm for entrepreneurs wanting to grab a piece of the web 2.0 pie. In hope that out of the "mashups" chaos, a few viable models will eventually emerge.

Amongst these experiments, the most in favor are those dealing with "social" [insert your own hype word here] services, where the intended audience is some sort of "community" of interests. The underlying concept is to capture the natural tendency of human beings to gather and talk. Some people will choose to go to "Ye Olde Cheshire Cheese" and do this with a glass of ale; other will login to MySpace… Ultimately though, the most lively and sticky places are those where people communicate whatever the subject, even without subject.

It is important to keep in mind that communications alone does not necessarily act as the primary draw for gathering. Back in the days of consumer online services, email was not effective at acquiring new users. Mainly because most people had no idea what email was and how useful it could be. New users where acquired by showing unique benefits, such as unique content. Yet once they discovered the benefits of email, the mail box became the common ubiquitous reason to join the community. As a result, it is critical to understand that what attracts people initially is often not what keeps people on your network interested in the long run. After all is said, people still hang out in their favorite pub or [insert your own favorite place here] to have conversations.

At the same time, a community generates its own content, and uses its own style in expressing widely its interests. When transferred to the Internet, in a context where people themselves are increasingly becoming the sources of content and the owners of distribution, it becomes clear that any strategy based on increasing switching costs becomes antagonist with the users' aspirations. In effect, we are increasingly seeing an inversion of control, where service providers benefit from customers provided competitive advantages. Switching costs remain a critical success factor for building market share and defending against competition. However, who creates and controls it is fundamentally different from previous services.

Walled gardens are the antithesis of this new dynamic. As the control shifts towards community, a new environment appears where, instead of a service provider locking its customers into a walled garden, people themselves willingly create their own high switching costs. For instance, for an auction service, the switching cost is not the relationship with the service itself, but the reputation and trust a user has spent time building with other community members. For bloggers, the switching cost is not the time spent constructing the blog, but rather the social network of "friends" accumulated over time.

Ultimately, and it may sound like a paradox, the most successful services will offer entire freedom to their user to churn while giving them unlimited communication capabilities. The most successful communities will be those having understood that self imposed constraints at switching are the only ones willingly accepted by members.

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