Opening A Door You Can't Close

Today's social networking executives seem hell-bent on making history repeat itself.

MySpace, Google, Facebook and others are trying to "out open" each other by giving third-party developers access to their users, their platform, and their data.  They are even coming together to join groups like OpenSocial to simplify data portability between platforms.

The primary impact is an increasing amount of traffic being consumed in third-party widgets, rather than on the social network itself. Third-party application developers are building increasingly sophisticated apps that cause users to spend more time in the widget, and are even building their own advertising networks to monetize those users.

While opening your network may be popular in the media, it could have devastating results.

This problem is not just limited to social networking. The real fight is over the Web Operating System. The operating system is increasingly shifting from the desktop to the Web. More and more, your files, photos, and applications are being delivered from the cloud. The cloud is giving users unprecedented access to data from any location or device. This is the greatest shift in computing in the last 30 years.



The fight over the Web operating system will be a war of monumental proportions. All of the major players will be vying to not only own your data, but more importantly, own the connections between you and your friends and colleagues.

The current strategy these companies are using is to open up more and more access to user data and the social graph.

This is a race to the bottom.

FaceBook is the hottest thing right now. So was MySpace -- up until last year, when the fairy dust wore off. So were Friendster, AOL, and PointCast. When the next hot thing comes along, FaceBook could bleed users at lightning speed. Ironically, they will have made it easier for customers to leave.

Closed networks help you retain users. There is a reason AIM is still the leading IM client, Microsoft still dominates the desktop OS, and cell phone companies don't bleed users even when the service sucks.

If you find yourself in the rare position of having acquired hundreds of millions of users, you should hang on to them for dear life. Opening your network only makes sense in areas that are not strategic.

I can already anticipate the hate mail from people that preach that openness is the key to future success, but 400 years of business wisdom don't agree.

How open is the iPod or iTunes? How open is Google's search algorithm? Exactly.

Today's social networks are fighting for the wrong prize. These companies are so focused on their competitors and the press that they are ignoring what is really important: How are they going to make money from the platform itself?

The evidence is mounting that we are much further away from an ad model for Web-based applications like social networking than previously thought. Sergey Brin announced on a recent Google earnings call that they have not yet found the killer application to monetize social networking. At many social networks, inventory is going unsold even at absurdly low CPMs.

As social networks continue to fumble around with new approaches to monetization, they risk alienating the very user base they fought so hard to acquire.

While the chest-thumping about openness is going on in the press, the real struggle behind the scenes is around how to retain and monetize users in an open world.

Social networks need to make changes to survive. They need to develop new ad models that enhance the user experience.  Banner ads are simply not going to cut it, and users will continue to tune out the ads. They also need to own an ad platform that monetizes both the platform itself and the widgets that run on it, so they make money regardless of where the page views end up. Finally, they need to figure out which areas will be strategic to retaining users, and keep those closed at all costs. Opening up a network only makes sense for the losers, not the winners.

Unfortunately, these networks may have already opened a door they can no longer close.

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