Fuld & Company's Competitive Intelligence Blog

College-age kids and major corporations have quite different views of the role of content in the Internet age.

Make music free, make textbooks cheaper, and it all more accessible, it’s our right, say the students.

We’ve invested billions in our brands, say Viacom and News Corp, owners of MySpace. Some would say that this is the next 100 years war (current copyright rule in the U.S., anyway, is Life + 70 years. That means whatever intellectual property you produce songs or books, for example are yours for your lifetime plus another 70 years).

Who’s going to win this battle?

If the two years worth of public war games we have run (as opposed to the private corporate strategy events we run for companies) on the subject of digital entertainment and virtual communities are any indicator, both Viacom and News Corp fervently believe that Content is King. These companies and their owners are not about to let go of their perceived rights and the content they own anytime soon.

Viacom has just sued Google and its YouTube operation for $1 billion, claiming YouTube allows purloined content from its Viacom properties all too freely to be used (or abused) by anyone who wants to view the shows. Viacom claims it is being cheated and that they will subsequently lose advertising revenue.

The cynics would say that this lawsuit is merely a ploy to force Google to come to the table and negotiate. That’s not clear. Remember who owns Viacom, Sumner Redstone. He’s the dude who hung on to a window sill while a hotel was on fire, not letting go. This was in 1979 and while he’s now a man in his eighties, he’s the same fellow who is still fighting for ownership and control.

Control is what Redstone is all about.Watching his actions, you can see he built an empire, brands worth billions, MTV, Nickelodeon, Comedy Central, and he’s not about to see their value frittered away by some feel-good young people, declaring, Life is good, life is free. No, Redstone wants his share or the ability to negotiate his fate, not have it stolen from him. That’s Redstone’s thinking.

Yes, Viacom lacks a powerful magnet Internet platform like a YouTube from which to resell its content. That’s a shortcoming Viacom is furiously trying to compensate for by buying or building platforms through which it can resell or launch content and further extend its advertising dollars, as well. So far, though, it has not created a YouTube.

MySpace, owned by News Corp (and tough-talking Rupert Murdoch) would seem to sit in the same seat as Viacom. Yes, News Corp does have a great platform for pushing its television shows and movies. It has MySpace. In that respect it has what Viacom does not have. However, if you watch News Corp’s actions carefully, you see it is moving in the same direction as Viacom; it wants restricted or controlled access.

According to a report in the New York Times, MySpace has begun to restrict members of the MySpace community from selling their own content through MySpace, unless they cut a deal with MySpace. Participants in the MySpace community are upset and MySpace may have to grapple with balancing, “Life is good, life is free,” with eventually relinquishing some of its demands to restrict users selling their own content.

Who will win this battle, this 100 years intellectual property war is not clear. What is clear to me, based on the war games we ran over the past two years at Harvard Business School, MIT, and London Business School, is that large corporate owners of copyright material are not going to give up their fight for their property, at least without some sense of control.

Everyone acknowledges the power of the Internet. Viacom acknowledges it. So does News Corp. They also believe that while life can be good, it just can’t be free.

Viacom just rocked the virtual community world by pulling out the copyright attack card with a $1 billion lawsuit against YouTube.
The suit highlights a little-discussed reality: virtual communities are fragile, tenuous entities. Can they truly survive uncontrollable market forces not of their own making? The answer is a definite maybe – as far as the war game at the London Business School indicated (see my previous posting). Students there (some very smart, very worldly business people in their own right), had a hard time creating viable strategic options for their futures. Over the next few years, a number of the teams could not even argue that their companies will survive, let alone thrive. Sexy and cool as MySpace and YouTube seem, they are prone to attacks.

Facebook may not have the video copyright violations but is open to mass defection. The threat to Facebook that their constituents will just walk out on them as they graduate from school – disappearing like clouds in the sky.

The all-powerful MySpace, with its 130 million-plus members, seems invincible. Grow, grow, grow – really? Yes, it is a News Corporation child with plenty of proprietary content it can legally use. Unfortunately, it’s that darn phrase, “legal,” that keeps cropping up. Pornographers and pedophiles have decided to enter this community. It might not be Viacom that MySpace has to concern itself with–rather entire governments that could descend on its kingdom.

Let’s face it, the problem with virtual communities is that they are just that–virtual. New ones spring up every day – and almost as quickly disappear. If MySpace or YouTube crumbles over the next few years, someone else will build a server farm to accommodate another one. No, it’s not easy to do what MySpace has done in attracting content and audiences. I’m not poo-pooing its accomplishments. I am simply pointing out a lesson observed by students and market analysts in last week’s London Business School war game: Virtual means virtual. Given the laws of virtual physics, when a vacuous virtual community encounters a potential host of immovable lawsuits or government crackdowns, guess who wins? Guess who disappears under those circumstances?

When someone first mentioned “virtual communities” to me, I thought “What market? What battle?” Afterall, Google did pay lots of money for YouTube ($1.65 billion) but what does the search giant have to show for it? Not much.When someone first mentioned “virtual communities” to me, I thought “What market? What battle?” Afterall, Google did pay lots of money for YouTube ($1.65 billion) but what does the search giant have to show for it? Not much.Yet, after spending months researching the subjecting, attending a forum or two where hundreds of Web 2.0 entrepreneurs mingled with venture capitalists and other investors, something told me they can’t all be wrong (but lots may lose their shirts in the process – such is the role of the innovator- sometimes. Oh, well.).

Then I brought my consulting crew from Cambridge (US) and London (UK) together this past week on March 6, to join forces with some very smart London Business School (LBS) students and voila, we had a strategy game that opened my eyes.What a battle it was. Approximately 35 students fought each other to figure out where the market truly lies for the virtual networking innovators. In fact the BIG question on the table really was: Which social networking Internet site has the best model for generating ongoing revenue?

In case you are interested, MySpace was declared the winner in the fight for revenue amongst the four major social networking communities during a day of intense role-play amongst Sloan Fellows, Executive MBA and Executive MBA-Global students at London Business School (Tuesday 6 March). MySpace emerged as the social networking community ahead of its rivals YouTube, Facebook and Second Life.

This sort of role playing, which has taken place previously at both London Business School and the Massachusetts Institute of Technology, has shown itself to be quite prescient in projecting real-world competitive trends.

The four teams were first asked to devise their strategies for gaining and maintaining competitive advantage. They were then presented with a “what if” scenario – suppose that Apple Corp launches iTown? This would be an on-line community for subscribers to its iTunes site? The site will help Apple compete with Google’s YouTube, which has been adding commercial content and has now linked with the BBC to provide entertainment and news channels.

All four teams came back with robust strategies, but the MySpace team emphasised that “content is king”, and MySpace is rich in content. They suggest, in this projected scenario, that MySpace may need Apple, but Apple also needs MySpace as the company with the largest, richest social networking site on the Web, with 130 million participants.

The eight students who comprised the team of MySpace executives were placed first by a panel of judges drawn from commerce and the media. In their summary, the judges advised the students they could have gone even further in considering ways for monetizing their companies. They also believed that the four companies represented in the room may not be the leaders in five years’ time – or at least not in the same form as the companies existing today. New propositions, new ways to attract communities will emerge. The communities will most likely exist through the mobile phone world, and through the family entertainment center.

It was terrific watching the students transform themselves from outsiders playing a role and labelling their companies as “they,” to taking on the personalities of these firms. The “they” became “we” by the afternoon’s second strategic head-butting session. Second Life developed an elite smugness. MySpace demonstrated all the swagger of its Australian media mogul, Rupert Murdoch. YouTube displayed the techie, cool prowess of its Google masters. Facebook looked a little lost at times, as if they were truly the college students who discovered they were playing in a rough and tumble world of business and had not yet learned all the tricks.

Some predictions emerging from the day were:

 
• Apple, or a similar vendor, will likely enter the social networking space in the near future and upset the balance or dominance struck by YouTube and MySpace. The iTunes platform offers Apple a great opportunity to grow and find other ways to monetize a social networking site with Apple’s “cool factor.”
• Second Life will likely break out and offer a number of breakthrough applications that will catch fire.
• Facebook is going to face a growth crisis and may reach a plateau in the near future. It is reaching in to the MySpace upper age range of the current population and will bump in to other networking sites on the corporate end that may stymie its growth, such as Linked-In, a company not included in the LBS game. It will also run into sites, such as EONS, that is specifically geared for the 50-plus social networkers.
• YouTube will need to figure out a strategy to truly monetize its site. At the moment it earns little, compared to its giant parent, Google. YouTube will continue to grow but will not necessarily be a threat to Apple, which itself must figure out new ways to grow its revenue. At the moment iTunes exists because of iPod. iPod is where Apple makes most of its money and iTunes is the platform that allows it to do so.

This is the second year running that London Business School has invited my firm, as competitive intelligence and business gaming specialists, to devise and facilitate for students a day of what are commonly called competitor war games. Businesses around the globe are increasingly using war gaming to help them get under the skin of their competitors and thus devise strategies for gaining the competitive advantage.

Normally, we can’t talk about the private war games we run for our clients. Their outcome is secret. For a client, every strategic option must be kept quiet and executed expediently. Running a game for the public, such as the Virtual Community game at LBS, allows the techniques to be showcased to a wider audience.

As one of the judges at the LBS game stated, it’s very likely the winner of today (MySpace) may not be the leader tomorrow (that’s not the way Rupert Murdoch would like to have it). Tomorrow’s virtual community may be a blend of entertainment forum and networking tool. No one seems to do all of it well for everyone – yet. Most important, no one has quite figured out how to make a fortune while building a social network.

My bet is the future market leader in social networks will be Apple or some other company that understands “cool” and how to capitalize on it. Let’s check in with one another in a couple of years and see if this week’s London Business School event truly was prescient.

‘MySpace winner in London Business School Battle for
today’s Virtual Community Strategy Game

March 7, 2007, London – Which social networking Internet site has
the best model for generating ongoing revenue? MySpace was
declared the winner in the fight for revenue amongst the four major
social networking communities during a day of intense role-play
amongst Sloan Fellows and Executive MBA and Executive MBAGlobal
students at London Business School (Tuesday 6 March).
MySpace emerged as the social networking community ahead of its
rivals YouTube, Facebook and Second Life.
This sort of role playing, which has taken place previously at both
London Business School and the Massachusetts Institute of
Technology, has shown itself to be quite prescient in projecting realworld
competitive trends.
The four teams were first asked to devise their strategies for
gaining and maintaining competitive advantage. They were then
presented with a ‘what if’ scenario – suppose that Apple Corp
launches iTown? This would be an on-line community for
subscribers to its iTunes site? The site will help Apple compete with
Google’s YouTube, which has been adding commercial content and
has now linked with the BBC to provide entertainment and news
channels.
All four teams came back with robust strategies, but the MySpace
team emphasised that ‘content is king’, and MySpace is rich in
content. They suggest, in this projected scenario, that MySpace
may need Apple, but Apple also needs MySpace as the company
with the largest, richest social networking site on the Web, with 130
million participants.
The eight students who comprised the team of MySpace executives
were placed first by a panel of judges drawn from commerce and
the media. In their summary, the judges advised the students they
could have gone even further in considering ways for monetising
their companies. They also believed that the four companies
represented in the room may not be the leaders in five years’ time –
or at least not in the same form as the companies existing today.
New propositions, new ways to attract communities will emerge.
The communities will most likely exist through the mobile phone
world, and through the family entertainment centre.
Some predictions emerging from the day are:
 Apple, or a similar vendor, will likely enter the social
networking space in the near future and upset the balance or
dominance struck by YouTube and MySpace. The iTunes
platform offers Apple a great opportunity to grow and find
other ways to monetise a social networking site with Apple’s
“cool factor.”
 Second Life will likely break out and offer a number of
breakthrough applications that will catch fire.
 Facebook is going to face a growth crisis and may reach a
plateau in the near future. It is reaching in to the MySpace
upper age range of the current population and will bump in to
other networking sites on the corporate end that may stymie
its growth, such as Linked-In a company not included in the
LBS game. It will also run into sites, such as EONS, that is
specifically geared for the 50-plus social networkers.
 YouTube will need to figure out a strategy to truly monetise
its site. At the moment it earns little, compared to its giant
parent, Google. YouTube will continue to grow but will not
necessarily be a threat to Apple, which itself must figure out
new ways to grow its revenue. At the moment iTunes exists
because of iPod. iPod is where Apple makes most of its money
and iTunes is the platform that allows it to do so.
This is the second year running that London Business School has
invited competitive intelligence and business gaming specialists,
Fuld & Company, to devise and facilitate for students a day of what
are commonly called competitor war games. Businesses around the
globe are increasingly using war gaming to help them get under the
skin of their competitors and thus devise strategies for gaining the
competitive advantage.
Competitor strategy games are normally held in great secrecy, but
these role-play events allow the techniques to be showcased to a
wider audience.
Andrew Brennen, Sloan Programme Manager at The London
Business School, explained “We very much welcome the opportunity
for the real world to be integrated into our courses. Our students
find the in-depth background briefings and guidance by the
facilitators during the day’s role play immensely interesting and
stimulating. And it’s very revealing how accurate the strategies
they devise turn out to be. Last year the winning team represented
Apple and their vision of the future of the corporation was later
echoed in real life”.
Teams representing YouTube, MySpace, Facebook and Second Life
battled it out to create a business strategy that would create the
revenues needed to justify what were, in two cases, enormous
purchase prices.
Founder of Fuld & Company, Leonard Fuld, said “It is our experience
that these simulated competitor strategy ‘games’ – which we have
run on both sides of the Atlantic, at Harvard together with MIT, and
here at The London Business School – are a good approximation of
reality and the results frequently predict what will happen in the
commercial world within six months”.
Ends
March 7 2007
Media information and photographs:
Jane Martin 020 8749 8849
jane@a-propos.co.uk
Fuld & Company
Contact Tony Nagle
020 7659 6999
tnagle@fuld.com