William C. Taylor, author of Mavericks at Work, a New York Times, Wall Street Journal, and BusinessWeek bestseller, summarizes Buffett's response:
I've often written here on Experience: The Blog that we are going to see an explosion of Social Media sites that will be followed by a difficult period of desperate evolution, combination, takeovers, and failure. Social Media won't die--in fact, it will come back stronger than ever--but it may seem that way to the many folks who are working at the thousands of Social Media startups that are already struggling for attention, traffic, loyalty, revenue, and profits.
There's a "natural progression" to how good new ideas go wrong. (Buffett) called this progression the "three Is." First come the innovators, who see opportunities that others don't. Then come the imitators, who copy what the innovators have done. And then come the idiots, whose avarice undoes the very innovations they are trying to use to get rich.
Perhaps Buffett's term "idiots" is a bit strong to describe the many caring, smart, and visionary people who are trying to launch new Social Media tools right now, but one only has to begin to scroll through the lengthy list of site logos on Go2Web20.net to begin to have a sense of dread for the future for these sites and the people behind them. Many of these sites will succeed, but even if "many" sites succeed, it seems hard to ignore that many more will not.
The problem with innovation that Buffett conveys is that, "You can't stand to see your neighbor getting rich. You know you're smarter than he is, but he's doing all these [crazy] things, and he's getting rich...so pretty soon you start doing it." This "me too" mentality happens whenever innovators start getting attention and making money (or at least creating paper value). On Go2Web20.net, click "Select Tag" and then "Photo." What you'll see is dozen after dozen of photo-sharing sites. What are the chances that all of them succeed? Absolutely, undoubtedly zero. If even half of these sites find financial success and longevity, it will be surprising.
This is exactly what happened in the late 90s with the innovation of the Internet. The early success of Lycos and AltaVista beget many other search engines, most of which failed. Of course, some succeeded--the domain Google.com wasn't registered until late 1997, years after Alta Vista became a popular search engine, but Google still managed to attain market domination in the search engine world.
The lesson of Google is important: First of all, they didn't try just anything, nor did they duplicate what was done before; their search engine was different, focusing on better algorithms to produce better and more accurate results for searchers. Secondly, they had a vision and they executed on that vision, starting with a clutter-free home page that left their banner-ad-selling competitors scratching their heads.
Warren Buffett's "Idiots" are the people who saw successful search engines and figured they could enjoy the same success doing the same things. These are the people who attracted Venture Capital and launched amazingly lucrative initial offerings of public stock, only to see their paper wealth disintegrate when the idiocy was revealed in the dot-com bust.
Are there Idiots in Social Media today? Maybe the term shouldn't be "idiots" but instead "unrealistic dreamers." Clicking through many of those Photo sites on Go2Web20.net, I saw a lot of Flickr and Photobucket wannabes with little to no innovation beyond what can be found on much larger, older, and more established photo-sharing sites.
There are important things for Social Media innovators to learn from the experience of the Internet era and from Buffett's 3 Is:
- Entrepreneurs should research thoroughly, focus on points of differentiation, invest wisely, exploit niches, and strive for objectivity rather than unfounded optimism. (Ironically, this can perhaps best be done by turning to Social Media itself--involve people, gather opinions, and listen to both the complainers and the complimenters, the naysayers and the supporters.)
- Investors need to be smarter and demand more. Is there a chance a general social network may surpass Facebook in the future? I happen to believe there's a good chance this will happen. The chances you invest in the one social network that displaces Facebook? Damn near zero. As an investor, look for smart, small investments rather than furnishing your cash to people who want to "be the next Facebook."
- Marketers need to move cautiously and deliberately as they set their Social Media tactics and choose partners. Setting aside some budget for experimentation in more innovative sites or strategies is important, but that doesn't mean you should toss cash anywhere. Define your audience, study your consumer, set your objectives, and connect the dots from where your target audience is to where you want them to be.
At an aggregate level, there is no avoiding the natural human inclination to follow the innovators and to let optimism and greed rather than reason guide the flow of money into bad ideas. But at a micro level--you and your business--there is no reason to allow this to happen with your assets, ideas, and future. Being the Social Media equivalent of the next Google (or even Ask, AOL, or MSN, all of which have less than 5% market share) will take more than incrementally improving upon Facebook, Flickr, or Twitter. It will take hard work, intelligence, vision, careful risk assessment, and very savvy decision making.
Don't believe me? Just ask SavvySearch, WebCrawler, InFind, Contentville, GoTo, Open Text, Magellan , Remarq, Deja, Flipper, HotBot, InvisibleWeb, iWon, and Looksmart. Don't remember those search engines? Exactly!