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I am Joannes Vermorel, founder at Lokad. I am also an engineer from the Corps des Mines who initially graduated from the ENS.

I have been passionate about computer science, software matters and data mining for almost two decades. (RSS - ATOM)

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Saturday
Apr172010

Stack Exchange 2.0: epic fail?

It's a sad thing to see a pair of brilliant entrepreneurs going for a probable epic fail with best intentions in mind.

IMHO, the recently announced Stack Exchange 2.0  has a high probability of failure, and worse (as far I am concerned) it might marginally hurt my business due to the lack of ongoing commitment for the forum I did setup for my own company a few months ago.

Let consider the situation:

  • Stack Exchange is an excellent Q&A engine, something that the market had been waiting for a long time, as illustrated by the success of Stack Overflow.
  • Stack Exchange 1.0 had a very reasonable business model, announced with an entry price of about $120 / month.

Now, Stack Exchange 2.0 for a business plan that urgently reminds me of the 37signals announcement of their $100 billion valuation:

When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation.We’ll give away everything for free and let the market speculate about how much money we could make if we wanted to make money. That way, the sky’s the limit!

So let start by discussing the arguments proposed by the SE team to go for a free service:

  1. SE had not enough enough beta volunteers. They were expecting "thousands of sites would start to sprout up on every possible topic" (sic)
  2. People were prone to create "ghost-town sites that nobody visited" (sic).  "Allowing anyone with a credit card to make a site" (sic) wasn't a good idea.
  3. People were prone to "multiple sites on the same topic" (sic).

Expecting an overnight success

Well, as far point 1 is concerned, that was just plain unrealistic expectations. Yes, I am 100% sure that SE 1.0 (Stack Exchange 1.0) could have ultimately had thousands of happily paying customers, but it turns out there is no overnight success. Stack Overflow was a quick success because it benefited from two famous bloggers with huge 100% focused audience.

Yet, SE 1.0 is a B2B product, and needs to be marketed and sold accordingly; and it turns out that the SO (Stack Overflow) is definitively not the right audience to market SE. All the SO folks happen to be software developers: little wonder that you get half a dozen SE spawn focusing on startups (but we will get back to this point).

Hence, SE 1.0 had not even been marketed yet, not to the relevant audience anyway.

Then, the beta branding is sufficient to scare away about 99% of all B2B prospects; software tools are sort of a one-of-a-kind exception here. Thus, to even get a chance for SE to succeed, it would need to branded as v1.0 then start charging for it.

Companies don't trust "gratis" stuff, and rightly so. B2B is the contrary of B2C: you have to start charging for it to succeed (open source entered the business the day people started to charge for it).

What about the ghost sites?

Building a community is a very significant investment. It takes a lot of time, typically years, and thousands of hours of work. SE 1.0 was beta. How could it be expected any reasonable organization to push such a commitment on an unproven solution? For most businesses, a solution becomes proven when someone gets charged for it, and this person claims that is was money profitably spent.

Then, the SE team implicitly assumed that low traffic means implicit failure: those guys with credit cards they don't know what they are doing.

The market gets it wrong, and we are going to do it better.

I am very skeptical when anyone (even bright people) pretend to know more than the market. If somebody is selling Luxury Yatch, then a single answered question might be worth millions of USD if it makes the difference to close the deal.

If people (like me) are ready to be pay $100 / month for low traffic websites, then there might be another explanation than those people don't know how to spent their money.

Pushing the point further, how do ghost sites hurt the SE business in anyway? Companies pay for the websites, nobody looks at those websites, nobody gets hurt by those websites. Take the money and stop whining.

Websites on similar subjects are created

Considering that SE was primarily addressed at a near monolithic audience (software developers), it's little wonder to see that many people had the same idea at the same time.

This is old behavior inherited from Economy 1.0: it's called competition.

And so what? Software editors sell their products to companies who happen to compete against each other. This is a healthy situation. At some point the market may decide to elect a "outstanding" winner, but most of the time, market does not, and competition keeps going.

Again, pretending to know more than the market is a wild assumption.

As final point of the analysis of SE 1.0: the outlook was bright, it needed an official v1.0 release, some meaningful marketing outside the software crowd, and SE 1.0 was very likely to become a profitable business. Dropping the SE 1.0 at this point almost look like a bad case of Fear of Success.

Outlook on Stack Exchange 2.0

The SE 2.0 business model claims that service will be offering for free. Yet, there is nothing as free in business. Most likely SE 2.0 will be paid through the advertising tax which happen to be extremely expensive.

In particular, this business model will be way to expensive for most organization to commit any significant resources.

Basically, SE 2.0 is positioning itself in the attention sharing economy trying to re-introduce the old byzantine usenet rules. The intrinsic problem is that creating a community is very different from actually creating business value.

For example, Wikipedia is a worldwide community success, but it's actual business value is zilch: you might donate to Wikipedia, but you can't invest in Wikipedia and expect any financial reward.

Then, SE 1.0 had low profile unknown competitors; SE 2.0 is getting up ahead a direct confrontation with big guys: Google, Facebook, LinkedIn which will - no doubt - deliver their own variants (if SE 2.0 prove to get some traction) to be marketed much more effectively using their social communities.

As a final note, I am hoping, if the SE team sticks to its plans, that the market will quickly fill the room left empty by the now defunct SE 1.0. Contenders are already in place.

Reader Comments (9)

Are you planning to migrate http://ask.lokad.com to shapado.com ?

April 18, 2010 | Unregistered CommenterTarek Demiati

Well, SE 2.0 just created the market for SE 1.0 competitors to exist. So at this point, I am not in a hurry, I would prefer to wait and see who are the most active players in this area. Shapado, OSCA and AskRobot looks good. Actually, it does not take that many people to clone SE. I am eager to see what SaaS packaging get offered.

To address your initial question: If the SE team decides to reject me as a customer, then I won't have any choice but to go and meet the competition.

April 18, 2010 | Registered CommenterJoannes Vermorel

I don't really see what the motivation is for someone to put all the hard work in to create a community, only to have Joel, Jeff and their VCs control and monetize it. Especially now that they have made it clear that they can and will shut sites down if they want to.

April 19, 2010 | Unregistered CommenterAndy Brice

Hi Andy, indeed. Yet, as I was saying in my first paragraph, I am pretty sure that both Joel and Jeff are doing that with the best intentions. Obviously, their will be random folks fitting well into this scheme, but I expect any reasonable company to stay away from this.

In a way, if SE 2.0 survive, they will be become like Wikia http://www.wikia.com (but for Q&A groups instead of wikis). Not that bad, but really not worth the risk of both loosing control (VC) and opting for a troublesome business model (advertising).

April 20, 2010 | Registered CommenterJoannes Vermorel

I think there is a case for the 2.0 approach, based on the quality of early Usenet communities. They were good at attracting genuine enthusiasts.

We are a commercial organisation with a large online audience, who we think would benefit from a SE based site. We also have a large network of expert professionals, many of whom would be willing to act as moderators.

The idea that these expert professionals (who are already vetted by all kinds of regulatory bodies) will need to jump through hoops before attaining a modicum of control is going to make the SE proposition much less appealing.

I agree that the 1.0 business model was not given a fair chance. What sorts of attempts were made to reach out to communities of experts in non-IT disciplines? How many organisations like ours were getting ready to launch SE sites? How many will now drop the idea because of the effort involved and lack of control?

Even the folks at math overflow have noted "...how important and useful dictatorial and admin powers have been..."

If an academic community is worried about handing over control to the SE team, imagine what it's like for a body of professionals with commercial interests.

April 20, 2010 | Unregistered Commentergreenfingers

What's with all the (sic)s after the quotes? I can't see any mistakes in them, just quite informal English.

The competition argument for similar sites didn't seem to be working. For example there are 3 photography sites: http://www.photoqna.com/questions, http://photographr.info/questions and http://www.lensfail.com/questions which currently have 87, 159 and 109 questions and ~140, ~140 and ~70 users. Fragmentation doesn't naturally disappear, instead you get isolated islands and newcomers will probably just avoid all of them and stick with the existing (fragmented) forums.

April 22, 2010 | Unregistered CommenterDan

Hi Dan, In my (sic) quote, I was not pointing out any spelling mistakes or even phrasing style I did not like. I am not even a native English speaker, I would not dare to criticize Joel on his writing style, which I am quite found of. :-)

I was only outlining what seemed to me like business insanities. People with money in their credit cards AND willing to spend that money on your stuff are the last people you want to dismiss. You should not fire your customers, that's about the closest thing to suicide in business.

April 23, 2010 | Registered CommenterJoannes Vermorel

Great analysis !

April 30, 2010 | Unregistered CommenterFabien7474

A superb analysis indeed! I recently looked at using SE for our new product after seeing your forum. When I looked into it, I could only see the new SE2 approach. Sadly I can't see how we could become a customer with this approach. To be honest, I never really understood what they were doing until I read your article!

Thanks

Sean

July 30, 2010 | Unregistered CommenterSean Kearon
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