The Network That Lived on Desktops

Learning objectives

1. Recognise the innovator's dilemma when users move to a new screen before revenue does.
2. See why reorganising the company, not only the product, was necessary.
3. Weigh short-term pressure from public investors against long-term position.

Session plan

1. 0–5 min Read the situation, what is known and unknown, and the voices in the room. No discussion yet.
2. 5–13 min Each participant chooses an option on the case page, states a confidence and writes a one-line pre-mortem: if this choice fails, the most likely reason is…
3. 13–28 min Debate by option. Ask each group to describe the company's organisation chart a year later under its option.
4. 28–33 min Reveal the outcome.
5. 33–50 min Discuss the public admission that the earlier approach had been a mistake, the reorganisation into product groups, and the costs of putting ads into a personal feed.
6. 50–60 min Transfer: participants identify where their own users are moving faster than their organisation.

The case page records each participant’s choice, confidence and pre-mortem in their own browser, and scores the confidence once the outcome is revealed. Nothing is sent anywhere, so it can be used in any classroom.

The key facts on one page

• The network had 845 million monthly users and more than 425 million mobile users in December 2011.
• Its prospectus warned that it did not generate meaningful revenue from mobile.
• Shares priced at $38 in May 2012 fell to about $17.55 by September.
• Mobile was about 23 percent of advertising revenue at the end of 2012 and about 53 percent a year later.

Where discussions go wrong

• Seeing the outcome as inevitable. Many established companies failed the same transition.
• Leaving out the costs to users of a more intrusive, more attention-hungry product.

The forces at work

• The innovator's trap: The desktop business was profitable, growing and well understood. Mobile users were growing faster but earned almost nothing. Every rational short-term signal pointed to protecting the desktop, which is exactly how established companies miss shifts.
• The cost of a previous bet: The company had spent about two years building its mobile apps in web technology. Abandoning that work meant admitting a costly mistake in public, just as investors were judging the company for the first time.
• Two sides of the network: Users and advertisers had to move together. Ads that annoyed users could shrink the audience advertisers were paying to reach; an audience with no ads could not pay for the service.
• The pressure of a share price: As a newly public company, every quarter's revenue would be scrutinised. The temptation was to optimise for the number analysts watched rather than for where users were going.
• The view from outside: Earlier platform shifts, from mainframes to personal computers and from desktop software to the web, had punished leaders who stayed loyal to the old screen. The base rate was not on the side of caution.

The lesson to carry out of the room When your users move to a new screen, follow them before your revenue does, and rebuild the product for that screen rather than shrinking the old one to fit.

Pairs well with: The idea Why Good Management Fails and the essay on social media.