Over the next few days I’m going to publish three blog posts that are pretty much the same blog post, however, to save your eyes, I’ll break them up into three smaller posts.
The first post is my thoughts on how the social media industry has evolved and where the market may or may not lead. The second post will look at the developing social business market and the third post will look at how brands might start to actually implement this stuff. You know, the ‘how we make money out of all of this’ post.
I’ve always been interested in seeing how business and technology evolve, which has always come in handy as that’s been my job for the last three or four years. Well, about two years ago, I was talking with Tim Hoang about Everett’s Diffusion of Innovations and how you could apply this to network analysis to see how you could track messages moving through a network and how marketers could then unpick the network mechanics to understand the role of influence better. This then lead to me reading a bit more widely into adoption and growth theories and then I found life cycles.
Now, for anyone with a casual interest in business or marketing theory, life cycles will be old hat. But for me, they were a revelation.
Using life cycle graphs, you can begin to predict which services/products/industries/agencies are going to be rising (or declining) in the future – this is obviously incredibly valuable in such a fast moving industry as social media.
I then started plotting my own work (developing products and services) against Levitt’s theory of Product Life Cycles (PLC) and trying to understand at which point products and services needed an overhaul. After a weekend of further reading, I saw a reference to Steven Klepper’s work on Industry Life Cycles (ILC) and how it had been applied to various industries for more than fifty years. Things started to click a little bit more with how I could apply these models to social media (services, agencies and the industry) and using the models to think smarter about how social media would develop as whole.
The graph below is Klepper’s Industry Life Cycle, it’s a simple graph that highlights the four key areas of an industry’s development; birth, growth, maturity and decline.
Klepper probably explains the phases better than I could;
“Three stages of evolution are distinguished. In the initial, exploratory or embryonic stage, market volume is low, uncertainty is high, the product design is primitive, and unspecialized machinery is used to manufacture the product. Many firms enter and competition based on product innovation is intense.
In the second, intermediate or growth stage, output growth is high, the design of the product begins to stabilize, product innovation declines, and the production process becomes more refined as specialized machinery is substituted for labor. Entry slows and a shakeout of producers occurs.
Stage three, the mature stage, corresponds to a mature market. Output growth slows, entry declines further, market share stabilizes, innovations are less significant, and management, marketing and manufacturing techniques become more refined.”
The idea of applying this ILC to the social media industry is a little bit on the fluffy side until you overlay the ILC analysis with Everett’s adoption curve and begin to plot out where certain brands fit within the analysis.
It’s even possible to begin matching dates to the x-axis – the ‘innovators’ period could quite comfortably be around 2000/2001 and it’s fair to say that we’re currently (in 2011) experiencing the late majority/laggards phase. Suggesting that the industry is maturing and we’re (potentially) about to hit a period Hugo Hopenhayn coined ‘The Shakeout’.
‘The Shakeout’ is a simple principle. During the growth period of the ILC many organisations join the market without differentiating factors – the market fattens up because the overall market value is on the rise, so people join to enjoy the spoils – causing an overflow of suppliers once the demand begins to mature and level out. Hopenhayn believes that this ‘The Shakeout’ hasn’t actually happened until the amount of suppliers is less than 70% of the volume at its peak. With this in mind, and given the current state of the social media industry (specifically in the UK), I’d say we’re due to lose about 30% of the suppliers over the next eighteen months or so as the market matures and levels out.
While this sounds terrifying, it’s simply market forces acting naturally. However, there is a way to break the trend of the ILC and access a new market at the bottom of a new curve.
Six months ago I was reading the Harvard Business Review and I stumbled upon an article by Tim Breene and Paul Nunes (both of Accenture) who were promoting a book they’d written calling Jumping the S-Curve. Breene and Nunes are interested in helping their clients to break the cycle of decline and ‘leap’ onto the next s-curve and by providing a methodology for innovation, they hope to help many organisations ‘buck’ the decline of the PLC. After spending a considerable amount of time looking at how Klepper had applied the PLC to the ILC, I began to try and overlay some of my thinking to Breene and Nunes’ model. The results of which are highlighted on the graph below.
Here we see three s-curves, each representing a period of around ten years. For the first curve, I’ve taken the second graph and I’ve begun to look at what and when the next curve could be. Given the last few years has seen the original innovators (Brian Solis, Jeff Dachis, David Armano etc) from curve one begin to discuss social business, it’s a fair guess to say that the next ten years is going to see social business becoming a large part of the industry. It will be the innovation that the industry needs to sustain itself.
It’s a difficult leap, but it will act as a filter and force true innovation amongst suppliers and the potential rewards (i.e. market volume) are, in my opinion, far greater than anything that the industry has seen over the past ten years.