About the "Baked In" series: Facebook CEO Mark Zuckerberg likes to say that social dynamics are going to work their way into every industry, and the companies of the future will be the ones that bake them in from the beginning, rather than slapping them on as an afterthought. This series takes a look at companies that are discovering new opportunities by using social components in the foundations of their businesses.
Kevin Efrusy will one day go down in the history books as the venture capitalist smart enough to recognize Facebook for what it was--not just a childish diversion, but a potential business powerhouse. As a member of vaunted Silicon Valley firm Accel Partners, Efrusy has gone on to make other bets on social companies, and in 2009, he co-authored a white paper on the rise of the social web, stating that Facebook and Twitter were presaging “a fundamental disruption” in many other categories of Internet-based businesses.
Today, Efrusy, whom Fortune dubbed one of “8 Rising VC Stars,” calls the social web the “substrate” on which a slew of new businesses will be built--and which will prompt existing businesses to retool, just as legacy businesses retooled to take advantage of the Web. Fast Company caught up with Efrusy to find out more.
What’s your take on what Zuckerberg is saying?
Every time you have a shift in media, a similar pattern plays out. From radio to television, television to the Web portals, the Web portals to search--every time you have one of those shifts, the way of you take advantage of the medium is different.
What does it take to do this well?
Building social into your product is very hard. Your product itself has to be social. It can’t be, “How do I just build a product and then use social media to market it?” Which is why it’s mostly new companies that are the most successful [right now]. Take Groupon for instance. One of the reasons it’s worked is that the nature of the offers are very social. They are specifically picked to be things that people want to talk about. You want to tell your friends about new restaurants, about going skydiving, about going on the Napa wine train. That’s very different than taking a traditional retailer--even an Internet retailer--and saying, “Use Facebook.” Because a lot of products--people just don’t want to talk about.
It sounds as if Zuckerberg is saying every industry is going to be disrupted--not just gaming companies, like Zynga, or shopping ones, like Groupon--but also other industries, like trucking or health care. Is that right?
Yes, it’s both. If you look at what the Internet did, the people who took advantage of it first were new companies. But then the existing companies all figured out how to incorporate the Web into their practices. Everyone has a website now, and you can even pay your parking tickets online. So eventually all businesses re-engineer themselves around the new technology. So I think Mark is absolutely right: Social will be built into everything--just like the Web got built into everything.
But we think that companies that do it from the ground up have the chance to reinvent some industries. Look at how Amazon reinvented retail. There are still plenty of brick-and-mortar retailers that are doing great and doing great online, but there’s only one Amazon.
Are there certain industries that naturally lend themselves to being first movers in this area?
Yes. Businesses that find their business through word-of-mouth. That’s what social is great at. As it turns out, though, most business is from word of mouth. Even large purchases. When you consider what kind of car to buy, where to live, how to choose a physician or a general contractor or a piano teacher--all of those decisions are heavily influenced by people you know and trust. In fact, in many ways, the search paradigm isn’t the way people do things. [Part of that is because] most of the information on the Internet has an agenda, so it’s very difficult to get truly objective data. So the best research is from people you know who’ve experienced it. You know their only agenda is to help you because they’re your friend. Social media helps make that process really efficient.
Are there industries where social will matter less?
For things that are very commoditized and price-sensitive, there’s very little impact from social. But anything where there’s a matter of personal preference involved, especially if it’s local, and especially if it’s a service provided by a person, as opposed to a generic good—those things social is perfect for.
Has the advent of social changed how Accel looks at companies that come pitch it?
Yes. If the nature of the business should be social, you definitely want people who understand how social customer acquisition works. There are entrepreneurs who are more algorithmic, and entrepreneurs who understand social better. And the ones who understand social have a big advantage over the entrepreneurs who are purely algorithmic.
Where does this leave legacy companies?
It’s an opportunity, if you’re willing to take advantage of it. The ones that jump in first to take advantage of it will do better than the ones who wait. It’s important for them to get in, experience it, and learn. The ones who do that will have an advantage over their competitors who do not.
They should also be forward-thinking. They should look not just at their existing competitors, but they should keep a lookout for brand new competitors who leverage the expertise in social to enter and reinvent their industries.
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