The Unsuccessful IT Hegemons

They write the success stories of today's corporate world – companies such as Amazon, Google, Facebook and Apple are not only at the top of the market capitalisation rankings but also have a huge influence on our lives. Influence that may even extend to the results of the presidential elections in the world’s most powerful country. Today, we are all so accustomed to the success of leading digital corporations that we often put an equal sign between information technologies and a successful business. A closer look at the history of the online and software industry, however, will show us that this is far from being true.

A whole bunch of technological corporations, which were promising in the past, have  already immersed in oblivion, and today, they are either bankrupt or their market value has fallen drastically.

The list of unsuccessful digital corporations that once ruled the online services includes names, such as the former most popular search engine – Yahoo!, the leading social network of fifteen years ago – MySpace, the promising platform for services based on the Foursquare location, and many others, without taking into account the popular chat application from the recent past – ICQ. They emerged as precursors of the new wave of the economy, but many of them

aged prematurely

and were swept away by the same devastating effect of technology that raised them at the beginning. By showing that no one is immune to change, today, their story marks another interesting trend – almost all of today's leaders in the technology segment are not pioneers in their areas. Neither Google is the first successful search engine, nor Facebook – the first large social network, nor Skype and Viber are the first popular messengers.

But what is the power that determines who will succeed and who will fail in this dynamic segment? Why some garage startups became multi-billionaire corporations while others have disappeared? And what can we learn from the story of former online hegemons, which are now struggling to survive or have already lost the battle? In the following lines, we will try to answer these questions by following some of the most memorable examples.

MySpace

When in the summer of 2005 the billionaire Rupert Murdoch paid the impressive USD 580 million for the social network MySpace, many were surprised. At that time, the very concept of “social networking” was known to few, and although the site had already gained popularity and was the leader in this category, the amount of half a billion was unheard-of for the acquisition of a web project of such a scale.

A few years later, the platform was sold to an online advertising company for just 5% of the amount given by Murdoch – USD 35 million. What happened to this project, which was promising for its time?  The shortest answer is: Facebook happened.

Although popular, especially among the artistic circles, MySpace slept away the most important changes in the social networking segment – their turning into a platform for external applications. Facebook, by contrast, quickly rode this wave and soon after its creation it turned into an ecosystem that included thousands of games and applications, created by third parties. This blast of creativity brought users to Mark Zuckerberg’s site without him having to pay for the development of all these additional services. And soon after the users came, the advertisers followed them. “We screwed up (MySpace) in every way possible, learnt lots of valuable expensive lessons,” Murdoch shared in one of his first postings on the Twitter microblog platform in 2012. Perhaps the most valuable lesson of this business story is that the modern world is a world of open ecosystems and those who are able to attract external developers to their projects will win the game.

Zynga

At the very end of the past decade, social networks were already the hottest phenomenon on the Internet, and Facebook had unexpectedly turned into the leading game platform. What is more, it made non-gamers play games. And Zynga quickly took advantage of this. FarmVille, Zynga Poker and Mafia Wars are just some of the company’s most popular titles that attracted tens of millions of fans. And which brought to Zynga USD 9 billion in capitalisation by the end of 2011.

Problems began with the growing number of complaints about spam generated by the social games, and in 2010, Mark Zuckerberg himself was forced to say that Facebook will restrict gaming messages to consumers who are not playing. A serious blow to Zynga’s marketing model. In addition to the increasing number of advertisers on Facebook, the ad’s prices rose, which made gaining new fans even more expensive. What followed was a new blow to the company’s profits when Facebook imposed on all external developers its new virtual currency; and migration from desktops to mobile devices was the last blow from which the once influential game company is still unable to recover.

Yahoo!

When we talk about significant failures in the online sector, we will probably think about this one first. Yahoo! was established in 1994 by the students at Stanford Jerry Yang and David Filo whose aim was to create a guide for easier searching of hierarchical information on the Internet. The service developed at a rapid pace and soon became a billion-dollar company whose shares were sold for USD 118.75 in 2000.

In 1998, its owners refused to buy another promising search engine – Google for USD 1 million, and four years later, in an attempt to correct their mistake, they offered Google USD 3 million. There was a counter offer of USD 5 million and the management of Yahoo! refused again.

Today, Google has serious chances to rank among the few corporations worth USD 1 trillion. Yahoo!, in turn, refused to be bought by Microsoft for USD 40 billion in 2008 and was sold to the Verizon telecom in 2016 for only USD 4.6 billion.

The reasons for this development are complex and have started more than a decade ago. The company lagged behind with key innovations and for many years saw itself as a media portal rather than as a technology innovator. It fully slept away the mobile revolution – a segment in which Google found its place and turned it into a serious revenue source. In addition, Yahoo! made a series of unsuccessful acquisitions, including revalued sites like Tumblr, Cooliris and Blink, which made things even worse.

Twitter

The microblogging platform is pointed out as a typical example of an online giant that has accumulated a huge user base but continues to fail in its monetisation. The company, to which many attribute the power to sparkle revolutions, today exists in the shadow of giants like Facebook and Google. Unlike them, it has never managed to find the right direction in the mobile era, and its application – Periscope was swept away by the competitive services of its more famous competitors.

SoundCloud

This is one of the most popular music services that reached 15 million consumers in 2012, and even the star Ashton Kutcher was among its investors. Three years later, its potential acquisition by Twitter for about USD 2 billion was rumoured, but it never happened. In August 2017, it was literally hours away from bankruptcy but was saved at the last moment by a new investment of USD 170 million.

According to many, SoundCloud has done nothing wrong in its development. The company is simply an example of the fact that in the online world, even if you are doing well, if you do not dominate your market segment, you will soon go into oblivion. SoundCloud has never managed to catch up to competitors like Spotify, Tidal or to the music services of Google or Amazon. And the result was the gradual withdrawal of artists and fans from an otherwise engaging online service.