Learn From a Failed Business Model


“It is hard to watch what many companies are going through today. Automakers, the news media, entertainment industry businesses, banks and other financial institutions–they and others are being seriously challenged by market forces, technology shifts and the changing dynamics of a global economy. Some of them are fighting for their very survival”. – Bridget van Kralingen, general manager for IBM North America

How does a high tech or Internet company succeed in 2012 and beyond? You must, first, understand why so many have failed in the past and continue to fail in the present day. The mistakes of the past should not be repeated.

In 1984, IBM was sitting on top of the world with a ton of money and a steamer trunk filled and successful business outcomes for their huge client base. They were the number five company among the prestigious Fortune 500 and were best known as the “world-beater” in technology. Unfortunately, IBM executives and their shareholders snowed themselves into believing that no competitor in the world could ever challenge their greatness. They were dead wrong.

Only nine years later (1993), IBM posted what at the time was the biggest loss in the history of corporate America, $8 billion. Why?

IBM was resting on its laurels and embracing its PC past, while their nimble and hungry competition was quietly gaining on them. Upstarts like Steve Job’s Apple and the China-based Lenova would not sit still and were constantly innovating with their own computing devices; leaving the bloated and stodgy IBM in the dust. For IBM, the home computing war was eventually lost and the surrender flag, hoisted.

In December of 2004, IBM sold its PC division to China-based Lenovo Group and took a minority stake in its former rival in a deal valued at $1.75 billion. With no real appetite to succeed, they simply got out of the very competitive home computing market to focus more heavily on corporate software and services.

Stay Lean, Mean and Hungry or Fail

The corporate world moves much more deliberate and at a far slower pace than the “what have you come up with lately” consumer market. The corporate world is a much more familiar place and comfortable spot for IBM to be in, these days. Even in their comfort zone, they still best heed the lessons of the past. They must stay on top of market intelligence and constant innovation or the mistakes of the past will return to haunt them once again.

Market intelligence in the early twenty-first century means keeping one’s ears to the web and listening to the consumer. Today’s more successful companies are constantly monitoring Social Media and carefully listening for their customer’s current and future needs and wants. They realize that it poor judgment to dictate to the consumer what his needs should be, based on what the company has to offer them. The consumer now knows that he can go elsewhere to get what he wants. No longer can a salesperson hope to sell a red pickup truck to someone seeking to buy a blue sports car, just because it is not currently available on the lot.

To be successful, a company needs to be prepared to offer a customer what he wants today and also know what he will want, tomorrow. Trying to offer an unsatisfactory substitute only confuses the customer and causes them to go elsewhere to find what they are looking for.

According to van Kralingen, “the path to success lies in understanding the relevant trends, figuring out how your strengths and resources can capitalize on them and staking out a leadership position.”

What Facebook Can Learn from IBM, Groupon and Foursquare

Facebook is one very special company that needs to learn what IBM’s figured out much too late. There are too many aspiring Social Media companies like Google (Google+) breathing down their neck, because they believe they can overtake them by improving on their business model.

Social Media coupon giant, Groupon seems to be falling off the leader board for failing to be much more than one trick pony. Perhaps, theirs is the wrong “trick” for today’s and tomorrow’s users.

Why is Groupon failing? Their business model is flawed. They charge their clientele – comprised mostly of small and often struggling businesses – far too much to participate. If they do sign on, many become overwhelmed by a rush of fickle bargain hunters seeking to take advantage of a one-time deal and providing little promise of ongoing customer loyalty (at full price). The experience often does more harm than good to a small business trying to thrive in a difficult economy. Many simply can’t handle the sharp spike in demand and may end up creating a negative experience for their customers.

Groupon’s problem is very simple – it lacks a sustainable strategic advantage. It already has hundreds of competitors, and more are likely. Size or being ‘first mover’ offer no significant advantage. They went public before they ever turned a profit and showed the world a flawed business model that doesn’t really solve their participating companies for sustained business growth.

And should Groupon falter, who is standing by with deeper pockets and waiting to take the model a positive step further?

Google has nearly unlimited funds, they have way more leverage than Groupon does. They can advertise/market Groupon into oblivion. Ultimately, Groupon has a neat website and a bunch of hipster writers and not much else. Most likely, Facebook or Google will buy Groupon for a rock bottom price and either integrate and enhance the service for themselves or shut it down to eliminate any further competition.

Then there is the case of Foursquare. It has approximately 20 million registered users, who able to alert their friends when they “check in” to a particular business location. The simple act of checking in on their mobile device can earn them special deals. On Foursquare they can also post reviews and upload photos about their experiences eating great bagels or buying hip clothing.

Recently, Foursquare faced similar challenges as Groupon. Google Places and Facebook have been attempting to drain some of the excitement that Foursquare has generated since its inception.

Foursquare has proven to be a much more viable competitor than Groupon ever has been. They have done their homework well and understand their demographics better than most others in Social Media. They are also aware that they must continue to innovate and introduce newer and better user options to succeed in a tough space with Google and Facebook on their heels.

To that end, Foursquare is starting to sell are Promoted Updates, which may be Foursquare’s most promising revenue source. They operate like Google’s promoted listings or Twitter’s promoted tweets. The pay-per-action ad placements only appear when a user is searching for a venue in Foursquare’s Explore tab. Foursquare launched the pilot program with 20 merchants in July. It has been well received by the business community, so far. The company is far from done, when it comes to seeking additional revenue streams from satisfying their users.

“We’re thinking of things that are going to be valuable for merchants that they’ll want to pay more for,” according to Steven Rosenblatt, Chief Revenue Officer at Foursquare. “I truly believe in the content that’s being created. We’re in a very unique position in that what merchants create actually enhances the product. People might actually pay to get more from merchants on Foursquare”, says Rosenblatt.

The Handwriting is on the Wall for Facebook

Where is Facebook on the continuum of successful business models? If its recent IPO fiasco is any indication of strength, Facebook is somewhere between IBM and Foursquare. They have 900 million users, which makes them somewhat resistant to being seriously challenged by any of its current competitors like Google. In 5th place among the Fortune 500, IBM once believed that it was too large and popular to be challenged. We already know that they were wrong.

But what if some revolutionary new network comes along and sideswipes them? It is not unprecedented for this to happen. We have already seen the downfall of such internet mammoths as AOL and MySpace. Both were caught sleeping and succumbed to competitors with much better business models. Could the same fate be in store for Facebook? Most likely, something will eventually overtake it. We just don’t know who Facebook’s heir apparent will be – not just yet. But, the technology of Social Media is sure to keep changing and Facebook could become passé, when compared to whatever the “next big thing” happens to be.

What are Facebook’s chief vulnerabilities? Zuckerberg and company still have a lot to learn about Wall Street, for one thing. People will not invest their money based on smoke and mirrors. The company still needs to prove that it can make money – and lots of it.

Facebook also continues to repeat one significant mistake in development over and over again. They generally fail to “listen” to their users to determine how to improve the Facebook experience. In fact, on several occasions, they have irritated millions of people, especially with regard to their security practices. This – the right to privacy – is probably the one area where major snafus are unforgiving.

Facebook has also not mastered mobile technology and has been unable to create a satisfactory advertising outlet for these devices. Here, another similar platform can capture a major advantage, since the number of mobile computing devices will overtake that of all others by early next year.

These are two areas that Facebook must address if it hopes to stay on top of the Social Media heap, indefinitely.

On the plus side, like Foursquare Facebook is always thinking about ways to improve the user experience. The creativity is there, if not the call for more user input. If significant changes and improvements are well received by the public, it just makes Facebook that much more difficult for its competitors to catch.

With 900 million users onboard, it might take a business earthquake to move that many people to another network. Such an earthquake is possible and fear of it should act as a healthy impetus for ongoing betterment.

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