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What China’s Online Companies Can Learn from the MySpace Implosion

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In what has to be one of the best almost-postmortems of an Internet company I have ever read, Bloomberg BusinessWeek’s Felix Gillette’s June article on “The Rise and Inglorious Fall of MySpace” offers a set of insights that apply far beyond the doors of the benighted (and recently sold at a 94% write-off) social network pioneer. I have extracted three lessons that I think are particularly germane for online companies in China.

Perception is Reality

Social networks are sufficiently new that they are still a little scary to your average consumer, less so than space tourism, perhaps, but more so than a trip to the grocery store. Fears about privacy, identity theft, stalkers, pedophiles, and a host of unseen and unimagined dangers lurks in the subconscious of even the most adventurous user. As willing as we are to flock to something new, we will take flight like spooked ducks if our sense of security is credibly threatened, leaving a once-hot network foundering. As Gillette notes:

One of the reasons social networks are so combustible is that they have proven to be particularly sensitive to public perception. In February 2006, Connecticut Attorney General Richard Blumenthal announced that he was launching an investigation into minors’ exposure to pornography on Myspace. The subsequent media frenzy helped establish the site’s reputation as a vortex of perversion. “If you have a teenager at home, odds are they’ve visited the blog site myspace.com,” Hannah Storm warned CBS News viewers in 2006. “And there are fears that this popular social networking website, and others like it, have become places where sexual predators easily prey on children.”

Researcher [Danah] Boyd of Microsoft believes that alarmist press ended up crippling the company. “The news coverage of teenage engagement on Myspace quickly turned to, ‘Oh my gosh, there are all these bad teenagers doing bad things and this is crazy!’ ” says Boyd. “Quickly, it turned into a big narrative about how this was a dangerous, dangerous place.”

This situation brings to mind an editorial that serial entrepreneur and Mahalo.com CEO Jason Calacanis wrote in 2008, suggesting that Internet startups didn’t need PR people, and that the CEO can and should be the PR guy for a company. I am inclined to agree with Calacanis to the point where the CEO is the chief spokesman for a company with media, bloggers, analysts and the general public, presuming of course that the CEO is not a reclusive nebbish who gets flop-sweat in front of reporters (and there are plenty of those.)

What the MySpace case suggests, however, is that somebody on staff or on retainer needs to be spending his or her days anticipating and addressing potential scares and other reputation busters, because waiting for such things to happen and then responding is already too late. As quickly as MySpace reacted, reaction was not enough, and in a world with five-minute news cycles it never will be. Besides, a CEO has far more things to worry about. And how IS Mahalo doing these days, Jason?

If It Does Not Look Broken, You Aren’t Looking Hard Enough

The old expression that “a rising tide raises all boats” has an unwritten corollary that applies to fast-growing businesses: “a rising tide covers all rocks.” High growth can mask a huge range of fundamental problems, and smart companies like Amazon go and dig them out even when they aren’t real problems. They understand that failure to do so will only mean problems later, when the growth slows, the tide goes out, and the rocks start sticking holes in the boat.

MySpace did not. As Shawn Gold, former head of the company’s marketing and content efforts, told Gillette, “when you’re growing at 300,000 users a day it’s hard to imagine that you’re doing anything wrong.”

In retrospect, that sounds almost delusional, but you have to be in one of these organizations to realize how dead easy it is to overlook or ignore critical problems. Hubris is as easy to catch as a cold when things are really good and you are being lionized by media and users alike, and even those immune to the hauteur virus are likely to be so wrapped up in just keeping the wheels on such a fast growing organization that they set “important but non-urgent” problems aside.

Companies have to build such organizational debugging into their culture and allow time and resources to address those issues. MySpace, by the admission of both Gold and its founders, were more seat-of-the-pants, and they paid for it.

Leaders Must Be Users

MySpace co-founder Chris DeWolfe made a point he felt was critical to the company’s long, slow slide to the middle of the social network pack:

“After we left, the guys that took over were never Myspace users,” says DeWolfe, who now runs a startup called MindJolt. “They didn’t have it in their DNA.” According to a source familiar with the sale, DeWolfe is also a finalist to buy the company. DeWolfe declined to comment.

This might be so much positioning, or even a bowl of sour grapes given the rough handling News Corporation dealt to the MySpace founders when they were shown the door. Let’s resist the temptation to get all ad-homenim for a moment and look at his point.

The owner or executive of a media company has to be in the audience, and for social media he or she has to be a participant. There is simply no other way to understand or manage the business. The idea of a newspaper executive who cannot read or a movie mogul who won’t watch films is ludicrous. It is the same for online companies, and especially social media.

This is particularly relevant for foreign companies setting up online businesses in China. You do not want to put someone in charge who is not a user, or, worse, who because of a language or cultural barrier is unable to be a user. The experience for these companies, not the content, is everything, and if you cannot evaluate the experience you have no business being in charge.

Don’t Go There

The history of social media and the Internet is sufficiently short that we should be squeezing as many lessons as we can out of every case. We will be analyzing the MySpace story for years, but Gillette gives us an excellent starting point. This is a superb article that should be mandatory reading for anyone putting their money into an online company, particularly in China, where we enjoy a surfeit of engineering talent and suffer from a dearth of capable managers.

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