Friday, April 18, 2008

Ning and the Underpants Gnomes

Article in Fast Company Today about Marc Andreeson's Ning. It talks about the viral loop, that creating a company that successfully get users to recruit their friends is awesome. How VC's love it, valuations go straight to billions and its nearly infallible.

Why haven't you heard of the viral loop yet:

You might wonder how something as profound, powerful, and potentially profitable as a viral loop has remained under the radar for so long. Andrew Chen, a blogger and former advertising executive who worked with MySpace, Hi5, and other social sites, has a simple answer: This critical insight "is worth a lot of money," and the few people who understand it "are all doing their own companies."

Here's my problem. Blogger, Digg, Twitter, LinkedIn, MySpace, Facebook, or Flickr. They have the viral loop, loads of users, have sky high valuations and they don't have a profitable business and no one seems to care about that. Not important, at all.
Reminds me of my favorite cartoon that I along with old friend Brett Goffin used to laugh about as we waited for the subsequent burst of internet bubble 1.0 in 2000.
The UnderPants Gnomes. The "Underpants Gnomes" are a community of underground gnomes.

The Underpants gnomes have a three-phase business plan,

None of the gnomes actually know what the second phase is, and all of them assume that someone else within the organization does.

Watch the Underpants Gnomes Episode, its great. Fast forward to last 4 minutes for more detail on the business model.
This time its probably different though, the viral loop is too powerful, those who know about are so secretive and brilliant they are just withholding phase 2 until the opportune moment.


namnum said...

I don't know Greg, are we allowed to say words like "bubble" and "profit" when discussing the secret plans of the internet elite ;)

I get you, where is the business plan? There is value being created, but is there a population of people willing to pay for it.

In defense of ning however, creating a platform for interest based niches to step in and create their own social networks strikes me a an actual *gasp* business model. Having put together a couple (of ning sites) already, I can tell you we happily have forked over a few bucks for their premium services and there's a few more that we'll pay for as we grow.

Now does that phase 2 ever actually equal phase 3 (profit)? Don't know, but the gnomes do.

BG said...

Love it.
Step 1 - Get the Underpants.
Step 2 - ?
Step 3 - Profit.

The issue obviously is the difference between business plan and business reality.

The valuation increase in hopes for the "next Google." Interestingly, though, I think some of these new technologies make money.... just not as much as "planned," and so - yes - the valuations are inflated to say the least...