This is How Internet startups manage to come out of nowhere and steal the bigger industry's lunch money

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This is How Internet startups manage to come out of nowhere and steal the bigger industry's lunch money

Post by circuitbored » Mon Apr 19, 2021 7:08 pm

A lot of people have presented business ideas to me over years and I love hearing those new ideas, but lately it seems like too many of these startup ideas are stuck on a "small-scale/organic growth social media site" model for promoting a product or content with ad revenue as an outcome. We really need to change the dynamic of this ideal because it's an overplayed hand in a constantly changing card game with an ever increasing buy-in.

Since the advent of the bulletin board, social media sites/platforms have evolved to become massive, profitable, and popular, but many suffer from a grinding and slow burn as moderation, monetization, and community management become a primary focus, while functional and useful service and product innovation on those matured platforms seems to take a back seat to pleasing shareholders, staying out of negative publicity, and to underhanded strategies based on improving community user engagement.

These days, creating and running a successful social site or app is a huge operation by nature even before popularity arrives. No matter how embedded a platform seems, they face regular threats from their smaller-scale competitors online, and during our on-going pandemic conditions world-wide, there are now more platforms like emerging every day.

These small-scale competitors have a much larger hill to climb than Bill Gates and Mark Zuckerberg had in their early days... You can't exactly run a scalable web site or mobile application with a large user base off of your home computer like they did in the past for cheap... The smartest entrepreneurs innovate in every aspect of creating a new operation, and they carefully research underlying blind spots of their competitors while carefully minimizing start up costs and avoiding pitfalls along the way.

If you're a sole proprietor with a short track record of success out to open a restaurant with limited funding, you generally don't spend huge amounts of cash to buy equipment, hire staff, and rent massive buildings in the first years of operation because that creates a dramatic investment risk. If you are a small investor as well, you generally don't take on competitors like The Cheesecake Factory and TGI Fridays too early on, even if you have a high level of experience in working within the industry, because they can quickly crush you with countermeasures like lowering their pricing, advertising more than you, and by starting a store "almost instantly" right next to yours.

The "buy-in" to business on the Internet resembles real life more than ever, whereas in the early days it was open ended and had no boundaries. The term "Think outside the box" had been abandoned long ago just like "Don't be evil" and "Think different"... Heck, I rarely even see slogans any more from most of the larger tech companies because they often have a hard time living up to and adhering to their original slogans historically.

Many new business ideas are limited in terms of business strategy and innovation these days because entrepreneurs are often seeking to "corner the market" with their new product and/or service ideas in order to be the next Microsoft, Facebook, or Google. Generating an Internet-based business idea far too often involves investors and business minds without including experienced technical architects until the project's execution phase, and this is why technical execution can often miss the mark for new Internet based business.

As congress considers regulating Internet-based companies like Google, Twitter, and Facebook, disastrous (but likely necessary) service disruptions can be a result. It's important for us to look at creating new Internet things that work in a more flexible and open (but also less service dependent) method. This also explains why blockchain and decentralized networks are gaining public popularity fast. If you look at NFTs as a startup operation, you can easily see why traditional operations are in a frenzy, it literally came out of nowhere, they are growing fast, and they may indeed change the game dramatically before traditional markets and investors ever catch up to them.

The least innovative entrepreneurs generate ideas that are highly dependent on where the Internet is "right now", rather than thinking ahead towards what the Internet will ultimately be -- It's a real problem that people see large corporations as our only future of doing business for innovation's sake... We regularly forget that small companies often emerge from nowhere and change the game based on the strength of their sound technical innovation. Companies that lose track of supporting their customers with firm value (before a focus on IPOs and investor profit) often fail quickly and hard when creators and audiences abandon platforms, resulting in disappointment for everyone involved. The primary reason why creators and users abandon platforms is because of a lack of innovation, functionality, and utility, and it's important for companies to remember that constantly in addition to any other operations they conduct. That makes running an Internet Business more complex now than ever, and that's also why products that make our lives more simple win more often than those that make our lives more complex.

Large companies have consumed, defeated, and acquired many smaller companies over time. Sites like Facebook that started as a simple community for communication with friends, and Google - That started as a search engine now do wildly different things in addition to their original intended purpose. Who would have every thought that Facebook and Google would be used now for authentication across many sites we commonly use. If giant operations like Facebook and Google end authentication support (for example) it could be a catastrophic event for many people who are currently oblivious to it. User accounts and saved user data will completely need to be re-established across every dependent site and application if companies like Google and Facebook are forced to reduce just their authentication/id services on the Internet alone. Things like search indexing, analytics, and email are totally dominated by Google as well, it's amazing how deep our dependence on certain companies run. This also explains why it is very hard to create a new independent business in many industries now as well without paying an increasing entry fee. This domination of the Internet by large companies also behind the scenes provides huge monopolies a unique and private grip on world-wide trends, statistics, and pretty much all Internet activity by nature, which may even surpass information gathering capabilities of federal government agencies in our modern world. Major outage or compromise in service availability for companies like Amazon and Google can now equal massive issues world-wide. Companies choose to "not play well" with each other now more than ever as they work to corner their foothold on vital Internet-based services. We are facing new and unprecedented problems in terms of privacy, public safety, and security that are just being uncovered.

Because of these types of Internet monopolies, consumers also suffer from controlled and limited flexibility. Just as a small example, Facebook used to permit posts from Twitter to be shared instantly which was a great assist to users who had accounts on both platforms to post in one single location to another site... "Copy and paste" functionality also became mysteriously limited within the platforms as well. These features disappeared suddenly across the two platforms, leading to a lot of lost productivity for users because perhaps because someone realized that keeping the features reduced overall engagement on their platform. By simply requiring users to manually enter each post, the post process becomes more inconvenient for it's users, but it increases ad revenue for the platform, so tough decisions were made to cement profit in this particular case.

Our (better-outcome) future lies in decentralized business operations, a pivot away from multi-service monopolies, increased cross-platform flexibility, and innovation for more open and uniform data formats. Unfortunately the prior statement requires reduced profit, and that's why those types of innovative changes, though highly beneficial to platform users, rarely happen in the modern world. Lean startups will seize this kind of ethic, and organize to maximize their potential with a long term focus on rewards.

We have seen the birth, death, and rebirth of many once vibrant companies over our years of computing, from Alta Vista, to AOL, to Amazon. The common thread is that certain file formats stick around, some grow massively, and some burn out. With the advent of Bitcoin, Dogecoin, and NFT growing fast we forget that in the most basic sense, the Internet is primarily driven by data and how it is formatted. For the sake of this discussion, and ultimately for Internet-based businesses, Internet data is driven, constrained by, and defined by it's format --

An interesting and "outside the box" way to look at how modern business is done now to evaluate what file formats represent the core of an Internet-based business idea... Here's a (highly generalized) breakdown of what file formats matter most to modern businesses (for example):

Google Search - Text and associated meta data
FaceBook - Text(user posts and ID) and associated meta data, Expanding into video content
TikTok - Video/Audio and associated meta data
Reddit - Content URLs, text posts, and associated meta data
Spotify - Audio files and associated meta data
Imgur - Image/video files and associated meta data
Twitter - Text(user posts and ID) and associated meta data, Expanding into video content

Ok, so you may get the drift of this post by now, and I hope you see that modern platforms are still primarily differentiated by the file formats they support, serve, and leverage. It's important for these platforms to never lose site of that as they grow and evolve at the risk of losing their user base. Pretty much every aspect of a particular Internet-based business can be built around their primary data/file commodity or product as a focus, and a business can change and grow dramatically if they add more supported formats or deviate from a focus on the data format they originally intended to support.

In all of the years of evolution, it seems like file formats that we work with (and how they are managed) have evolved at a relatively slow pace. Instead of extending and expanding file formats, many companies often choose to create their own proprietary data formats (e.g. Mp3 audio format, or for Microsoft with their ".doc" format). We still have databases, text files, audio files, images, and video file formats in the most basic sense. These formats represent a "core product" of value to users.

Users and content creators primarily navigate to and use YouTube (for example) to post and view videos for a variety of reasons -- From finding out how a new treadmill works to watching the latest Taylor Swift music video. Google has an extremely strong platform in YouTube in which they generate massive amounts of advertising revenue in many ways, and users that upload videos inherently promote the YouTube platform as a result of promoting their content. Youtube supports a variety of file formats like Mp4, Avi, FFMPEG, etc and plays them all (usually without fail) to public users across their web site and in their mobile application. A huge benefit of youtube for creators is that they can embed their uploaded videos on social media sites and into many other places like their own personal web sites. Embedding is one of the most important aspects of YouTube that has kept the platform dominant in my opinion... Many other sites that have tried to compete with youtube (like Vimeo) often find a very hard time breaking further into the market because of how "embedded" YouTube has become, and often because they host more private and exclusive content than publicly accessible content while also charging membership or subscription fees.

Citing YouTube's massive success, development staff, and firm grip on the Internet video segment, they are in a very influential position to control most of the Internet's video-based content overall. YouTube is in a great position to dramatically improve how videos are used, promoted, and shared... Unfortunately, instead of innovating things like smaller video file formats and a new music player that can play portable (offline) video and audio files on mobile devices, they've chosen to charge creators to promote their own content within the platform, and required users to manually enter more meta data for each upload as a time cost for using the service. This is a problem, when innovation turns from enhancing functionality, improving productivity, and making things more simple for a user base is trumped by things that benefit the platform first profit-wise. Many platforms are shifting to a model of innovation in early stages to being a minimal input and lower maintenance profit machine, this is quite possibly why they begin to decline in utility and market dominance. Youtube is right now considered "too big to fail" of course, failure for YouTube would be catastrophic for the entire Internet reasonably, but Innovation as a focus needs to happen or a new smaller competitor that extends the video file format (with a lot of hard work) can end up their fast-moving competition before YouTube ever has a chance to pivot... (ehem TikTok).

There are many other major Internet-based business and social platforms like Spot... (I won't mention names of course) that are quite dominant right now that aren't extending and innovating in regards to their "bread-and-butter" file formats, they are stuck in the cycle of having marketing minds develop less innovative revenue generation ideas like creating content playlists and new paid advertising placements, but this growth method is likely to burn out fiercely as content creators find they are losing money without positive results, and without users being able to have any real functional choices nor control over they see and hear on larger scale platforms and apps. A great slogan that has lost it's way within Internet business over time is "The customer is always right". It's great because it embodies the truth that no business can ever manage to force a customer to support or pay for it if it forgets the value of it's customers.

Marketers, sales professionals, leaders - All are roles essential to any successful business operation. When they are involved in Internet-based business, it becomes essential for positive and enduring growth and success that traditional business minds also become more involved and understanding of the new technical, ethical, constantly changing, and cultural challenges that the Internet represents. The Internet and computing represent limitless capabilities, many yet to be discovered, Internet-based business should not be managed like a traditional "brick and mortar" operations because of the new dynamics involved. It's important to design a road map for business success and develop each platform over time to enhance, support, and serve each unique community that is involved with the development, evolution, and use of every service to simplify our lives and to foster growth opportunity, equity, and fundamental fairness.

It's high time to bring the ethical and informed voices of platform content creators, developers, engineers, and innovators back into your high-level corporate strategy meetings, and to regard their new opinions and ideas just as much as those of traditional business executives. The most Innovative parts of the Internet were built and driven by real meaningful functionality and utility, not driven by a "highly monopolistic" and "shareholder-profit-first" model. The successful startups that will come out of nowhere to replace existing big business operations already understand that thoroughly, and that's why they'll come out of nowhere and "take your lunch money" if you don't.

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