How Facebook Beat MySpace

how we communicate – and might change the face of media – there was MySpace.  MySpace was targeted at the same audience and had robust capabilities, and ways to market long before Facebook.  It generated enormous interest, received a lot of early press, created huge valuation when investors jumped in, and was undoubtedly not only an early internet success – but a seminal website for the movement we now call social media.  On top of that, MySpace was purchased by News Corporation, a powerhouse media company, and was given professional managers to help guide its future as well as all the resources it ever wanted to support its growth.  By almost all ways we look at modern start-ups, MySpace was the early winner and should have gone on to great glory.

But things didn’t turn out that way.  Facebook was hatched by some college undergrads and started to grow.  Meanwhile, MySpace stagnated as Facebook exploded to 600 million active users.  In early 2010, according to The Telegraph in “Facebook Dominance Forces Rival Networks to Go Niche,” MySpace gave up on its social media leadership dreams and narrowed its focus to the niche of being a “social entertainment destination.” As the number of users fell, MySpace was forced to cut costs, laying off half its staff this week according to MediaPost.com in “MySpace Confirms Massive Layoffs.” After losing a reported $ 350 million last year, it appears that MySpace may disappear – “MySpace Versus Facebook – There Can Be Only One” reported Gigaom.com. The early winner now appears a loser, most likely to be unplugged, and a very expensive investment with no payoff for NewsCorp investors.

What went wrong? A lot of folks will be relaying the tactics of things done and not done at MySpace.  As well as tactics done and not done at Facebook.  But underlying all those tactics was a very simple management mistake News Corp. made.  News Corp tried to guide MySpace, to add planning, and to use “professional management” to determine the business’s future.  That was fatally flawed when competing with Facebook which was managed in White Space, letting the marketplace decide where the business should go.

If the movie about Facebook’s founding has any veracity, we can accept that none of the founders ever imagined the number of people and applications that Facebook would quickly attract. From parties to social games to product reviews and user networks – the uses that have brought 600 million users onto Facebook are far, far beyond anything the founders envisioned.  According to the movie, the first effort to sell ads to anyone was completely unsuccessful, as users beyond college and kids sharing items with each other were not on the table.  It appeared like a business bust at the beginning.

But, the brilliance of Mark Zuckerberg was his willingness to allow Facebook to go wherever the market wanted it.  Farmville and other social games – why not?  Different ways to find potential friends – go for it.  The founders kept pushing the technology to do anything users wanted.  If you have an idea for networking on something, Facebook pushed its tech folks to make it happen.  And they kept listening.  And looking within the comments for what would be the next application – the next promotion – the next revision that would lead to more uses, more users, and more growth.

And that’s the nature of White Space management.  No rules.  Not really any plans.  No forecasting markets.  Or foretelling uses.  No trying to be smarter than the users to determine what they shouldn’t do.  Not prejudging ideas so as to limit capability and focus the business toward a projected conclusion.  On the contrary, it was about adding, adding, adding, and doing whatever would allow the marketplace to flourish.  Permission to do whatever it takes to keep growing.  And resource it as best you can – without prejudice as to what might work well, or even best.  Keep after all of it.  What doesn’t work stop resourcing, and what does work do more?

Contrarily, at NewsCorp, the leaders of MySpace had a plan.  NewsCorp isn’t run by college kids lacking business sense.  Leaders create Powerpoint decks describing where the business will head, where they will invest, and how they will earn a positive ROI with projections of what will work – and why – and then plans to make it happen.  They developed the plan and then worked the plan.  Plan and execute.  The professional managers at News Corp looked into the future, decided what to do, and did it.  They didn’t leave direction up to market feedback and crafty techies – they ran MySpace like a professional business.

And how’d that work out for them?

Unfortunately, MySpace demonstrates a big fallacy in modern management.  The belief is that smart MBAs, with industry knowledge, will perform better.  That “good management” means you predict, you forecast, you plan, and then you go execute the plan.  Instead of reacting to market shifts, fast, allowing mistakes to happen while learning what works, professional managers should be able to predict and perform without making mistakes.  Once the bright folks who create the strategy set a direction, it’s all about executing the plan.  That execution will lead to success.  If you stumble, you need to focus harder on execution.  Probably get a new President who understands execution – in a more brutal way.

When managing innovation, including operating in high-growth markets, nothing works better than White Space.  Giving dedicated people permission to do whatever it takes, and resources, then holding their feet to the fire to demonstrate performance.  Let dedicated people learn from their successes, and failures, and move fast to keep the business in the fast-moving water.  There is no manager, leader, or management team that can predict, plan and execute as well as a team that has its ears close to the market, the flexibility to react quickly, and is willing to make mistakes (and learn from them even faster) without bias for a predetermined plan.

The penchant for planning has hurt a lot of businesses.  Rarely does a failed business lack a plan.  Big failures – like Circuit City, AIG, Lehman Brothers, and GM – are full of extremely bright, well-educated (Harvard, Stanford, University of Chicago, Wharton) MBAs who are prepared to study, analyze, predict, plan, and execute.  But it turns out their crystal ball is no better than – well – college undergraduates.

When it comes to applying innovation, use White Space teams.  Drop all the business plan preparation, endless crunching of historical numbers, multi-tabbed Excel spreadsheets, and Powerpoint matrices.  Instead, dedicate some people to the project, push them into the market, make them beg for resources because they are sure they know where to put them (without ROI calculations), and tell them to get it done – or you’ll fire them.  You’ll be amazed how fast they (and your company) will learn – and grow.