It is more than a decade since business decided to get serious about the internet, but traditional business still struggles to anticipate trends in the online world. From Google to mobile phone texting to social networking and the runaway success of Facebook, old-line business has regularly found itself behind the curve. For most firms and industries this is not a huge problem. They can use computer technology and the internet to increase the efficiency of their databases and accounting processes, turbocharge their research and catch up with changing trends in communications for marketing purposes as and when their appeal becomes irresistible. And when email becomes saturated with spam or the network seizes up, they can use the phone again, or the fax, or even meet face to face. It is not an existential threat for most businesses, even if it can be bewildering.
It is different for traditional media businesses, which face a direct threat to their business models from online, digital rivals that can offer more exciting, interactive programming such as computer games, social networking and other new applications, or unbundle previously complementary services such as advertising and editorial content or programs and offer a cheaper, specialised service to customers interested only in, say, the ads. It is safe to say that while many an upstart has established a viable business on the web and old-line media is well able to colonise established successes in new media, the old media companies are still searching for ways to transfer their traditional, content-driven services to the web while keeping their profits intact.
The emergence in the past two years of social networking - and especially Facebook - as one of the dominant forces on the web is the latest example of this phenomenon. News Corp had already bought into this sector through MySpace.
But this year Facebook exploded onto the world stage, dominating attention in the online media space since its release to the public in late 2006. The spark was Facebook's move in May to open its system to third-party developers, as Microsoft did back in the digital palaeolithic era of the 1980s and 1990s with Windows. But the key to Facebook's runaway success was viral marketing, something business struggles to come to grips with because by definition it can not be planned.
Facebook is an early "thought leader" in what might broadly be called the web wars, in which Facebook, News Corp, Microsoft, Google and Yahoo! are struggling to build massive online platforms to dominate the next phase of the internet along with consumer-generated content. News Corp's purchase of Dow Jones, publisher of The Wall Street Journal, and MySpace, Google's launch of mobile phone and web platforms and purchase of YouTube and Microsoft's $240 million investment in Facebook are some of the strategic plays jockeying to find a profitable business via the internet.
The next stage will be a deeper war for consumer attention and consequently the advertising dollar. The web will come full force to the mobile phone in 2008, driven by Apple and Google's devices, but nobody is sure if mobile phone advertising will work.
Meanwhile, the way the web is evolving is raising privacy and lock-in concerns. For example, there is no way to take your private data with you when you leave Facebook or MySpace, or even to delete it. Regulation is usually anathema for rapidly growing media applications, but the internet does need some kind of "number portability" for emerging web powerhouses such as Facebook so people can protect their data.
There are valid concerns about whether today's suite of web giants have become overvalued again, just as their predecessors did in the late 1990s and early 2000s. The web has become ubiquitous and even dominant, but that is not the same as saying the web powerhouses have the kinds of viable long-term businesses and defensible franchises that would justify multibillion-dollar valuations. Online ad growth has been impressive overall but once-popular categories such as banner ads are stalling, while pop-ups are seriously unpopular because they are so annoying, and no one knows if the advertising dollar will be large enough to support the online expansion in future. Facebook's advertising push elicited such a violently negative response from consumers that some companies cancelled their advertising plans.
Of course, similar reactions greeted the first commercial uses of the internet itself, such as advertising, commercial email and so on. These are now part of the web environment, which itself is becoming uncomfortably crowded. The one thing that can be counted on is that web creators will continue to find ingenious ways around attempts at regulation, which are best kept to a minimum.
© Fairfax Business Media
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