The subject is social networking and the fact that, whether it's Facebook, Linked‐in, Twitter and others, Internet‐based social networks are in a class of unusual businesses where the customer is the product – or, more precisely, where customer‐users of the product are themselves creators of the product.
If customer‐users tweet, Twitter thrives; if they don't, Twitter dies. So with Facebook. If customer‐users put up photos and comments on their Facebook sites, digitized "customer‐user‐friends" on Facebook visit. If customer‐users don't create interesting sites, visitors don't show and Facebook loses faces.
Imagine Wal‐Mart stores where customers chose and hauled in the merchandise, displayed it, priced it, hawked it, restocked it and paid Wal‐Mart nothing for the use of the store space; while Wal‐Mart's costs consisted simply of putting up and organizing the store for these customer‐users. Imagine if, in this business model, Wal‐Mart made money by inviting third‐party vendors to visit the customers selling products in these stores so that these third parties could sell their third‐party wares to these product‐selling customers. Finally, imagine what would happen if Wal‐Mart's product‐selling customers didn't like the Wal‐Mart space they used. Fewer would bring product to Wal‐Mart to sell it. And third‐party vendors would drift away because there would be fewer customer‐users in the stores to sell to.
This is the social‐networking model: customer‐users bring in the product – themselves and what they create around themselves – free; and third‐party‐vendors sell their wares to these customer‐users.
Whenever you build a business where your customer creates your content you have a wonderful edge. The more customer‐users create product in your space; the more other customer‐users are drawn to create product in your space; and the more third‐party vendors are attracted to your space to connect with and sell to the customers you have attracted. This is so‐called network effect, although given the incredible inter‐ activity that goes on back and forth on any social‐networking site it should really be called the inter‐ networking effect. On the other hand, when you rely so heavily on your customer‐users to bring in and create product in your space you had better be awfully careful not to alienate them, because you’re alienating both your product‐providers and the third‐party vendors you’re inviting to sell to these product providers at the same time.
Which brings us to Twitter – in some respects the most potential‐with‐possibilities of all social‐networking sites because, more than most, not only do customer‐users provide product to Twitter but they exchange product more and more frequently with other customer‐users and increasingly more and more intellectually high‐value product like, for instance, the Financial Times' Wolfgang Munchau sending you his latest thinking on the Euro.
Though in my view the sophistication of Twitter is a fraction of what it could be, this is an incredible site for the following reason: it is a virtual information Mississippi with a thousand tributaries multiplied over and over.
What do I mean? Think of being on Twitter as standing on the banks of an information Mississippi. Except this is your Mississippi. Your private information Mississippi. And think of all those customer‐users you follow as providing tributary rivers of information to your Mississippi. I happen to have information tributaries like The Economist, The Wall Street Journal and dozens of institutional publications, plus many individual bloggers like Simon Johnson, former Chief Economist of the IMF, and many others. Think of each bucket of information that flows from someone else’s tributary into your Mississippi as a tweet. You stand on your Mississippi’s banks and watch as the buckets flow by. And when you’re interested you can find out what is contained inside.
And there’s more. As you sit on the banks of your Mississippi – just behind you is a tiny brook into which you pour any buckets of information you have to communicate to the world – your tweets. These may consist of a brief comment of yours, or a comment connected with something you wrote, or the resending of a bucket of information – like an article – from some publication you want others to know you thought interesting. Your little information brook is a tributary into someone else's private information Mississippi. In fact, your tributary can flow into an unlimited number of other peoples' private Mississippis. And that’s how things flow in the world of Twitter.
I deliberately omitted many questions – like the business value of these social media and the risks associated with this value. But what's important here is to be aware that a kind of business where the customer‐user is the product is taking up more of our time‐space than ever before. And because you have millions of customer‐users creating product and exchanging the product they create with millions of others you have a business phenomenon that, to put it mildly, bears close examination.
— John A. Allison