Steve Ballmer still doesn’t understand social networking

A few years ago I wrote to Microsoft’s leadership and asked them why they weren’t involved in the new Web 2.0 space. I got an answer back that was about 2,000 words long and included the words “business value” 13 times. Translation: Microsoft’s leadership thought that Web 2.0 and social software like Flickr didn’t have business value and was too much of a potential fad to invest in.

Glad to see that Steve Ballmer, Microsoft’s CEO, is consistent. Notes that Geocities lost most of its value after being acquired by Yahoo and says “it had most of what Facebook has.” Let’s come back to that point in a second.

The thing is that Ballmer has bought into the advertising hype too. I remember when Microsoft’s President, Kevin Johnson, came to our group when I worked at Microsoft and explained that the advertising industry is 10x the size of the software industry and that he was going to steer Microsoft more into an advertising-driven business rather than just one that made its revenues from selling software. Translation: Microsoft was going to compete more with Google, Yahoo, and other companies going after the advertising pie.

Don’t miss this quote. It’s demonstrates everything that is wrong with Microsoft’s approach:

“There can’t be any more deep technology in Facebook than what dozens of people could write in a couple of years. That’s for sure,” Ballmer said.

When I worked at Microsoft I heard this over and over and over again from various engineers and program managers who STILL haven’t competed effectively with WordPress, Flickr, Skype, YouTube, or any of the other things over the years I’ve heard this “we can build that in a few weeks” kind of arrogant attitude attached to.

But, remember eBay? Remember how dozens of competitors tried to get into the eBay space? (and still are?)

Why aren’t they succeeding? Because eBay is NOT about the technology. It’s about the community and unless you have something that’ll convince the buyers and sellers all to switch all at one moment you’ll never be able to take eBay’s market away. Translation: it’s too late and eBay has huge defensibility around its business because people won’t move away from it even if you demonstrate 5x better technology.

Same with Facebook. I’m not moving away from it. Why? I have 5,000 reasons why (and another 500 already who want to be included in my Facebook network). Unless you can convince them all to move I’m not moving. This is why LinkedIn isn’t going to disappear anytime soon, even though I like Facebook’s approach a lot better. It’s also why MySpace isn’t going anywhere. My son says his friends are all on MySpace. My brother’s bar is on MySpace. They aren’t moving no matter how hard I evangelize Facebook.

Which gets us back to Ballmer’s quotes.

First, let’s share this one: “I think these things [social networks] are going to have some legs, and yet there’s a faddishness, a faddish nature about anything that basically appeals to younger people,” Mr Ballmer told Times Online yesterday.

I’m 42. Hardly young. And Facebook is appealing a lot to people in my social network and age group lately (and so is Twitter and other social tools like Pownce, LinkedIn, and sites that use social groups like Yelp, Flickr, Upcoming.org). I guess Ballmer missed that. This is what happens when Microsoft executives don’t get outside of their ivory towers very often. Steve, you really need to go to any tech industry conference and hang out in the hallways. Don’t come to San Francisco, you won’t believe anything you hear here anyway. But go to, say, LeWeb3 in Paris and hear what they say about social networks. You’ll probably hear Bebo. Facebook. And a few others. From even the old folks. Last night I was at a National Geographic event and lots of people were talking about Facebook.

Here’s another quote:

Mr Ballmer also noted that sites such as Geocities, an online community that was bought for $3 billion by Yahoo! in 1999, at the height of the dot-com boom, “had most of what Facebook has.”

Oh, boy. No way, no how.

First of all, I never joined Geocities. It never had utility for me. It was a place to build free Web sites. I found it had all the disadvantages to me that MySpace has and NONE of the advantages of Facebook. It was NOT a social network that exerted the kind of social pressure on me to join the way that Facebook did. I tried to ignore Facebook for years. Same with MySpace. But people I kept meeting kept begging me to join. Kevin Rose, when we had dinner, told me I was blowing it by not being on Facebook. That NEVER happened with Geocities.

Also, Facebook is now a business card collection. A rolodex. That has real utility that’ll keep me using it long after it joins the “old fad bin.”

Oh, and anytime people say “this thing is a fad?” I think of blogging. Lots of people told me that when I started it too. It wasn’t. Neither is Facebook.

But all this makes me think that Ballmer is trying to send signals to Zuckerberg (Facebook’s CEO) that the price is too high and that this is just a negotiating ploy. Nice one! But it doesn’t give me confidence that Microsoft is going to figure out Web 2.0 or social networking strategies anytime soon.

It also makes me realize that Ballmer has no clue about the future of advertising. If he did he’d be talking about how Facebook’s ability to concentrate people into buckets in a new way should be copied and studied. That’s where Facebook’s real advertising value is and Microsoft hasn’t demonstrated ANY ability to see that yet. Of course, Facebook itself hasn’t shipped its advertising platform that’ll demonstrate its vision there either, but I hear it’s coming.

Will Microsoft get a clue before Facebook gets an entrenched advertising platform going?

Ballmer proved with Google and with these quotes today: no.

201 thoughts on “Steve Ballmer still doesn’t understand social networking

  1. I think Steve Ballmer is right and I have to disagree with you on this. The hype about social networking is huge because of its large user base. Unfortunately, that doesn’t alone generate revenue (ask eBay about it). These social networking sites today are overly priced and Microsoft will end up losing money if they purchase any of them. You can sing all the praise about Facebook but I can guarantee you that its definitely not worth 10 billion dollars or even close to that.

  2. I think Steve Ballmer is right and I have to disagree with you on this. The hype about social networking is huge because of its large user base. Unfortunately, that doesn’t alone generate revenue (ask eBay about it). These social networking sites today are overly priced and Microsoft will end up losing money if they purchase any of them. You can sing all the praise about Facebook but I can guarantee you that its definitely not worth 10 billion dollars or even close to that.

  3. Saying Facebook is a fad is the same as saying iPods and MP3s are a fad. Neither will be permanent, they will shift and change. But the social impacts that they leave on our culture are indisputable. Steve Ballmer just doesn’t get it.

  4. Saying Facebook is a fad is the same as saying iPods and MP3s are a fad. Neither will be permanent, they will shift and change. But the social impacts that they leave on our culture are indisputable. Steve Ballmer just doesn’t get it.

  5. The unspoken assumption is that MSFT needs to be in EVERY business. Robert, perhaps, reveals his years of incubation within the Death Star. Of course, MSFT doesn’t “need” to “get” “the social”. Last I checked, they were still making a ton of money per quarter, in spite of Vista. And Office is selling, despite free alternatives of equal quality and cheaper, superior alternatives.

  6. The unspoken assumption is that MSFT needs to be in EVERY business. Robert, perhaps, reveals his years of incubation within the Death Star. Of course, MSFT doesn’t “need” to “get” “the social”. Last I checked, they were still making a ton of money per quarter, in spite of Vista. And Office is selling, despite free alternatives of equal quality and cheaper, superior alternatives.

  7. Microsoft has as much a clue about relating to today’s consumer and providing valuable products and services as much as does Phillip Morris, which has consistently tried and failed at horizontally widening its product offerings. Moral of the story: cigarette companies and Microsoft were great at defending their monopoly position, but terrible at creating substantial customer value.

  8. Microsoft has as much a clue about relating to today’s consumer and providing valuable products and services as much as does Phillip Morris, which has consistently tried and failed at horizontally widening its product offerings. Moral of the story: cigarette companies and Microsoft were great at defending their monopoly position, but terrible at creating substantial customer value.

  9. I don’t like being in the minority, but as a concerned citizen I cannot fathom the prices being passed around for facebook.

    If there is no business model now (business model = making money), theres not going to be one in the future. Skype proved that, build it and they will come, but they might not pay.

    Facebook is not a fad for many reasons – mostly the network effect as you have said. Valuations of a business HAVE to be on future earnings potential. Problem is, by releasing the “platform” facebook have essentially conceded they don’t know how to make money.

    When will people learn – when you aren’t making money, as cool as it is, its a HOBBY.

  10. I don’t like being in the minority, but as a concerned citizen I cannot fathom the prices being passed around for facebook.

    If there is no business model now (business model = making money), theres not going to be one in the future. Skype proved that, build it and they will come, but they might not pay.

    Facebook is not a fad for many reasons – mostly the network effect as you have said. Valuations of a business HAVE to be on future earnings potential. Problem is, by releasing the “platform” facebook have essentially conceded they don’t know how to make money.

    When will people learn – when you aren’t making money, as cool as it is, its a HOBBY.

  11. You are bang on target!!! Not only has Ballmer demonstrated his ineptness at understanding the huge value of Facebook’s advertising and media potential but he’s also blind folding himself to Facebook’s capability/potential role in a social search ecosystem!!!!

  12. You are bang on target!!! Not only has Ballmer demonstrated his ineptness at understanding the huge value of Facebook’s advertising and media potential but he’s also blind folding himself to Facebook’s capability/potential role in a social search ecosystem!!!!

  13. Good comments, Robert. I believe that most people over 25 have trouble relating to the Social computing generation. You, other 40-somethings like you, are an anomaly – there’s no arguing that. However, not understanding this space will be a huge handicap in business – and those who understand that will be better poised to compete.

    I don’t think you’re being quite fair to Ballmer, however… especially since you seem to agree with him on most points.

    Ballmer’s claim that social networking sites aren’t technically complex is true – we all know this. I’m not sure why you complain about this. IMO, he was underscoring that you cannot “buy” community… again, something I think you agree with.

    In addition, you mock him for not hyping the value of Facebook… but what do you expect him to do? Talk up Facebook until any investment is completely inviable? You need to think about this from a business standpoint as well as a Social computing standpoint.

    Ballmer will incur ire no matter what he says on the topic – if he says that Microsoft is investing they’ll say that you can’t “buy” community… if he doesn’t talk about investment they’ll say that Microsoft isn’t focusing here. In addition, he needs to walk a fine line not putting business at risk… something most in the social computing world understand as little as those in the business computing world understand about social networking.

    If you want to hold some people to task on Web 2.0 and Social Networking – focus on Ray Ozzie and Scott Guthrie. Getting the platforms, technology, and strategy in place for this is their job.

    Gotta give SteveB credit for hiring them.

    -Dan

  14. Good comments, Robert. I believe that most people over 25 have trouble relating to the Social computing generation. You, other 40-somethings like you, are an anomaly – there’s no arguing that. However, not understanding this space will be a huge handicap in business – and those who understand that will be better poised to compete.

    I don’t think you’re being quite fair to Ballmer, however… especially since you seem to agree with him on most points.

    Ballmer’s claim that social networking sites aren’t technically complex is true – we all know this. I’m not sure why you complain about this. IMO, he was underscoring that you cannot “buy” community… again, something I think you agree with.

    In addition, you mock him for not hyping the value of Facebook… but what do you expect him to do? Talk up Facebook until any investment is completely inviable? You need to think about this from a business standpoint as well as a Social computing standpoint.

    Ballmer will incur ire no matter what he says on the topic – if he says that Microsoft is investing they’ll say that you can’t “buy” community… if he doesn’t talk about investment they’ll say that Microsoft isn’t focusing here. In addition, he needs to walk a fine line not putting business at risk… something most in the social computing world understand as little as those in the business computing world understand about social networking.

    If you want to hold some people to task on Web 2.0 and Social Networking – focus on Ray Ozzie and Scott Guthrie. Getting the platforms, technology, and strategy in place for this is their job.

    Gotta give SteveB credit for hiring them.

    -Dan

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  16. Robert, I had a monster comment to this article that was pretty relevant and totally legit (or wasn’t it?). It seems to have disappeared??

  17. Robert, I had a monster comment to this article that was pretty relevant and totally legit (or wasn’t it?). It seems to have disappeared??

  18. I agree that the exit barrier of facebook is very high. But this happened in ICQ. Why can’t another start-up provide fantastic features that people join both, and gradually fade out facebook?

  19. I agree that the exit barrier of facebook is very high. But this happened in ICQ. Why can’t another start-up provide fantastic features that people join both, and gradually fade out facebook?

  20. A great post hitting directly the bull’s eye. The comments from Steve looks more of a frustrated blabbering as he finds Microsoft way behind others in the advertising-driven business :)

  21. A great post hitting directly the bull’s eye. The comments from Steve looks more of a frustrated blabbering as he finds Microsoft way behind others in the advertising-driven business :)

  22. The concept of Social networking is not a fad, but social network instances are. Why?

    usenet -> bbs -> email -> compuserv/prodigy forums -> geocities -> friendster -> myspace -> facebook/linkedin -> mash/ning/???

    Because history, technological evolution and the inherent fickleness of trendsetters tells me why. Balmer isn’t totally out of his gourd, he may just be unintentionally right.

  23. The concept of Social networking is not a fad, but social network instances are. Why?

    usenet -> bbs -> email -> compuserv/prodigy forums -> geocities -> friendster -> myspace -> facebook/linkedin -> mash/ning/???

    Because history, technological evolution and the inherent fickleness of trendsetters tells me why. Balmer isn’t totally out of his gourd, he may just be unintentionally right.

  24. Robert, I agree with many of the points you make about Microsoft, and the way many people at the company think. However, I don’t think you can ignore the fact that, to many people, $15B seems a laughably high valuation for Facebook as it stands right now.

    Don’t believe me? Ask some of your VC friends. Ask them if *they* would invest in Facebook at that kind of price. I guarantee you that none would. So, why do you want Microsoft to value Facebook at $15B? Now clearly, Microsoft doesn’t need the same kind of returns that a VC needs, but the question over valuation remains.

    You deride some Microsoft people’s the use of the term “business value”… I’m not sure why. From the way I read what you’ve written, you actually mean that you saw business value in areas that Microsoft did not. So, in concrete terms, what do you think the value is, to Microsoft, of taking a 5% equity stake in Facebook? In other words, what $ price should Microsoft value Facebook at?

  25. Robert, I agree with many of the points you make about Microsoft, and the way many people at the company think. However, I don’t think you can ignore the fact that, to many people, $15B seems a laughably high valuation for Facebook as it stands right now.

    Don’t believe me? Ask some of your VC friends. Ask them if *they* would invest in Facebook at that kind of price. I guarantee you that none would. So, why do you want Microsoft to value Facebook at $15B? Now clearly, Microsoft doesn’t need the same kind of returns that a VC needs, but the question over valuation remains.

    You deride some Microsoft people’s the use of the term “business value”… I’m not sure why. From the way I read what you’ve written, you actually mean that you saw business value in areas that Microsoft did not. So, in concrete terms, what do you think the value is, to Microsoft, of taking a 5% equity stake in Facebook? In other words, what $ price should Microsoft value Facebook at?

  26. Very good read. And aren’t all the Facebook= Friendster comparisons moot, since Friendster’s downfall in the US was technological? Facebook is hiring the best engineers away from every company. If they can keep growing their tech base, I don’t see why they’d have similar problems in the long run.

  27. Very good read. And aren’t all the Facebook= Friendster comparisons moot, since Friendster’s downfall in the US was technological? Facebook is hiring the best engineers away from every company. If they can keep growing their tech base, I don’t see why they’d have similar problems in the long run.

  28. Robert, you and I and David Meerman Scott know that it doesn’t matter if some old geezers “don’t care about Twitter or Facebook”.

    What matters is these tool communities are becoming mainstream at an alarming and astonishing rate: the critical mass you predicted in Naked Conversations has arrived.

    It’s irrelevant if many business are still stupid about blogs, podcasts, live event streaming, VoIP, Twitter, YouTube.

    What matters is customers are enjoying these, and they’re largely supplanting the MSM and corporate PR “messaging”.

    Ballmer is dismissive, to explain away the fact that Microsoft has not responded adequately to the social media trend that began in 1992 and is gaining that critical mass that is making it totally mainstream.

    Microsoft hates missing a mainstream technology. Ballmer is sour grapesing it, and poo-pooing specific services.

    Popularity of services waxes and wanes, but is that a reason to not jump in with a version like almost everyone else is?

    Microsoft is backing Yippykaya. Does Ballmer consider that socnet a silly “fad”? What happened to Microsoft Spaces blogging thingamajig?

    Microsoft is caught with it’s pants down, asleep at the switch. That’s all. And Ballmer is putting a positive spin on it.

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