Web 2.0 leaders struggle to maintain their top spots

The view from the top of the high-tech business world may be nice, but companies just need to look at the history of the industry to know it's not safe up there.

Market leaders must keep a close eye on their myriad competitors and copycats while also avoiding internal missteps. And top executives must not let the inflated egos that come with early successes get in the way of changing direction when necessary.

The Internet and fledgling Web 2.0 markets are a case in point. Some early leaders, like MySpace Inc. and Yahoo Inc., rapidly lost early share to newcomers. And now others, like Twitter Inc. and Facebook Inc., are working hard to avoid that fate. Even very successful companies like Google Inc. acknowledge that it's a struggle to maintain strong leads in their markets.

A few technology companies have thrived over the long term — IBM, Microsoft, Hewlett-Packard and Oracle come to mind — but most of them have had to bounce back from hard times at one point or another.

A company might be basking in the limelight one day, only to find itself confronting an insurmountable challenge the next and then facing a descent into obsolescence. It took years, but that was the fate of onetime highfliers like Digital Equipment Corp. and Sun Microsystems Inc.

Based on that history, Web 2.0 companies like Google, Facebook and Twitter, which have scratched and clawed their way to the top of their markets — in mind share, if not financially — will have to work harder to stay there.

Each of those three companies has momentum, buzz and millions of users. People don't talk about searching online for a new restaurant; they “Google” it. When Oprah Winfrey or NASA astronaut Mike Massimino wants to get the word out about something, they use Twitter. And when people — whether they aren't old enough to vote or are members of AARP — want to find out about a friend's big vacation or see the latest pictures of a niece, they go to Facebook.

“Yeah, these are the companies to beat,” said Dan Olds, principal analyst at Gabriel Consulting Group Inc. “Everyone is aiming at these three targets. Every Web 2.0 company worth its salt wants to be Twitter or Facebook or, in their wildest dreams, Google. They're the ubiquitous services that everybody knows about and everybody wants to become.”

Fending off an onslaught of competitors is not just a matter of continuing to figure out what users need and giving it to them. That's how a company gets to the top. Staying there means staying focused on the core business and avoiding distractions, Olds noted.

And, of course, it's vital to keep up with changes in technology, experts say.

Mike Schroepfer, vice president of engineering at Palo Alto, Calif.-based Facebook, said “there's no question” that technology helped the firm rocket past social networking pioneer MySpace. A key difference between the two rivals is that Facebook identifies itself as a technology company while MySpace sees itself more as a media business, Schroepfer contended.

For instance, when Facebook wanted to branch out into non-English-speaking countries, it created an engine that let users translate the social network's English-language pages into any other language themselves. Facebook's users have so far translated the site into 35 languages, Schroepfer noted. “That got Facebook into more languages sooner so [our usage] spread faster,” he said. “We grew internationally like a weed. It was in Spanish and German in two weeks, and French in 24 hours.”

In fact, according to online researcher comScore Inc., MySpace still has more users in the U.S. than Facebook does — 75.9 million versus 55 million. But worldwide, Facebook's user base is close to double that of its rival. In December, comScore said that Facebook had recorded almost 222 million unique visitors, compared with 125 million for MySpace.

The ease of translating Facebook has been key to the social network's rapid rise to the top of its business, said Andrew Lipsman, director of industry analysis at Reston, Va.-based comScore.

Despite the creative ways that Facebook and Twitter have attracted users to their sites, they are still facing challenges that Google is already working hard to overcome. For example, Google is using revenue generated by its wildly popular search engine to help fund development of new products, such as Google Maps, Google News and Google Health, that are helping to diversify its revenue base.

Twitter, especially, is still mostly a one-trick pony. While the microblogging site has been adding new users at an astronomical rate over the past year, it remains only a specialized blogging site. Twitter is already facing competition from Facebook, which in March added a tool that enables users to post brief messages — think tweets — to an unlimited number of friends. Its success has also attracted competition from start-ups that hope to replace Twitter as the company with the latest cool app.

John Byrne, a senior analyst at Technology Business Research Inc., said that although Twitter is now at the top of the microblogging pile, its position is precarious. “It looks like their shelf life may be limited,” he said recently. “They are one-dimensional, and people are getting the concept.”

How easy would it be to out-tweet Twitter?

Biz Stone, co-founder of Twitter, said the company already has experience in dealing with pesky up-and-comers, noting that his latest list of Twitter clones includes about 250 sites. Stone said the key for Twitter at this point is to gain perspective by checking potential competitors in the rearview mirror, but not to let that view influence its decision-making process. “You have to keep pushing forward and innovating,” he said.

Innovation Imperative

Olds noted that Facebook must continue to update and enhance its user experience by regularly adding new features and functions while keeping the interface as simple as possible. If it does, he added, the social network will be in a good position to maintain its lead, because users are generally reluctant to make the effort to switch social networks.

“Facebook needs to focus maniacally on serving its user base,” Olds said. “They need to fully understand what users want from Facebook, while at the same time looking for other services that would be a good fit for the site” — such as the recently added Twitter-like feature — or even forming a partnership with a newcomer like Twitter.

Michael T. Jones, chief technology advocate at Google, agreed that innovation is the most important factor in long-term success.

“The real issue is to constantly reshape yourself for the constant challenges,” he said. “It's more than just a race. It's a pentathlon. We were good at running, and now we need to be good at swimming. The key is to realize there's not a single game to win at. Successful companies try to be the new David when they're the Goliath.”

Jones noted that Google enables every one of its employees, from the newest hire to the top-ranking engineer, to help it come up with the next big thing. All employees are allowed to use 20% of their time in the office to work on whatever they want, be it a new business plan or a new Google feature.

“We're building products people want and not what products are on our five-year plan. Would the oldest CEOs come up with Twitter?” asked Jones. “It's the opposite of saying I'm a successful oil company with oil in the ground or a lumber company with a lot of trees. Here you have a person-to-person vote every time someone uses or doesn't use your product. If you come to Google Maps, it's because you didn't go to MapQuest. If you come to Google [search], it's because you didn't go to Yahoo.”

And that lesson applies not just to the likes of Google, Facebook and Twitter. After battling their way to the top, most companies should focus on the fact that no one has a permanent strategic advantage. And there's an art in staying focused on what you need to do to keep customers happy now, while simultaneously figuring out what customers are going to need later.

“If you want to survive forever, you need to be different 50 years from now, because your customers won't be the same 50 years from now,” said Jones. “We put some energy in what customers want and some energy in what they will want and a little energy in things that they may want someday.”