I can’t claim to be qualified to dissect the behavior of venture capitalists (and I certainly don’t mean to throw them all under the bus, as some of them number among my good, respected friends), but I wonder sometimes if marketers have been duped into believing in a social media liturgy that’s actually a cover story for a concerted effort by technologists and their supporters to make money.
So many of the businesses that provide social media tools aren’t really businesses, at least not in the same sense that we’ve defined them for the past few hundred years. Companies that manufacture, trade, or distribute physical things needed to manage spreadsheets that match real costs with tangible income, and do so in a way that accounts for resources used, employees employed, and capital borrowed. Standard, accepted practices guide these activities. Third-parties like insurance firms affirm them. Governments regulate them. In this way, the founding principles of a Coca-Cola or Procter & Gamble aren’t much different than those a kid uses to run a curbside lemonade stand.
None of it applies to Internet companies funded by VCs. They need publicly report nothing and don’t really make anything tangible. They exist to show the promise of profits sometime in the future and since none of the historic rules of finance, physics, or morality apply, anything is possible and everyone is an expert on how they’ll get there. So the world gets silly made-up language about “business models” and “paths to profitability” and lots of wise, know-it-all slide presentations at conferences filled with fellow denizens of the VC ecosystem. Smart, sincere people wax poetic about the death of copyright and the inherent freedom (and free-ness) of anything digital.
Why? To distract us while distorting the market mechanism. You see, when something is free consumers can’t vote on it with their pocketbooks. Giving away products and services with no expectation of payment flips the normal “why?” question that underlies any purchase into a “why not?” answer. But if nothing gets bought then how can usage indicate any real utility or value? Yet the mood in which estimates of this someday income are described is declarative, not subjunctive. Wacky, nonsense ideas like “free is the new paid” get teed-up, and nobody has the insight or guts to challenge them.
Only there’s not such thing as free. Costs and revenues just get shifted around, and sometimes are hidden.
There’s a very sensible and successful financial model behind the nutty public ravings about new models and paradigms: sell the promise to someone else. Spinning off the fantasies about the future is how VCs and their Internet businesses get paid for giving things away for free (by creating new tiers of private equity, or going public, for instance). The people who buy those hopes can only make their own profits if other people risk money on the same dreams. This is why it makes sense to invest money in Internet startups. It’s reminiscent of the game of musical chairs that brokers and banks played with risky home mortgages a few years ago. Or an outright Ponzi scheme.
And there’s a good chance your brand is an enabler of this inanity.
Many of us have bought into the ideas that social experiences have rewired our consumers, and that our mandate is to propagate “content” — a word that reduces the substance of what we believe and say, and how we narrate what we do to a generic, worthless placeholder on a technology diagram — freely to the various Internet-based platforms that have hopes of monetizing what we paid money to create (down the road via financial shenanigans, or immediately by running ads that most assuredly aren’t free).
People use social platforms and apps. I do. Free is good in my book. The ideas that are behind it, though, that worry me. Have we marketers bought into an approach to what we create and share that is ultimately worthless to us…or that renders what we do worthless to our consumers…while enriching the folks who sold the approach to us?
Remember, VCs don’t care if a particular platform or service succeeds or not, let alone if their philosophical musings are proven true; only one company out of a handful (or more) has to hit the jackpot and the money will suffice. The miracle of leverage makes it worthwhile to float dozens of pitches in a way similar to the blockbuster system that promises one big movie hit will pay for all the others that fizzle. Or the dependable expectations that there’s one more sucker willing to buy into those worthless mortgages, or that the market will abruptly move and make billions for your hedge fund.
You’ll be stuck with your brand long after Facebook and Twitter are nothing more than amusing memories (or they’ve transformed into real businesses that charge for things, which will make them a lot less amusing for all involved even as they enrich their founders and VC backers).
Before the next expert tells you to publish content or give things away for free, you might want to question your sources.
(Image credit: Bubble art)
Original Post: http://www.dimbulb.net/my_weblog/2011/04/questionable-sources.html
