3by9

Strategy is important. Seriously.

Imagine you have a company. You work hard, amass a large following, decide to issue stock shares and try to do your best to run the company properly. How would you feel if you found out that a consortium of investors, with a 21 percent stake in your company, are trying to take over the board? What if you had a large online community but your members desire a change in policy that goes against your business model?

This is what happened to CNet and Facebook. CNet is in jeopardy of a hostile takeover and Facebook made a drastic mistake in their business plan. Let me explain.

CNet was founded in 1992, has 2600 employees and is easily one of the largest entities online. CNet has a problem finding ways to monetize their content, keeping their stock shares up and CNet has the “If I cannot do it myself, I will just buy it” mentality. They bought their way into niches they did not understand and their lack of understanding stagnated their growth. An example of a bad purchase would be Webshots, purchased for $60M in 2004 and sold for $45M in 2007. Buying a way into a niche only opens one door, maintaining it is twice the work. A similar situation would be purchasing an epic-geared level 70 World of Warcraft character and thinking the character will grant you the privilege of granting you a slot on the #1 arena team. The team would quickly realize you do not know how to play. Purchasing the character does not give you the skill just like purchasing a website will not guarantee the website will continue to be successful. As advertisers become wiser, spending more efficiently, large websites like CNet take a hit:

“While the online tech ad market has been growing in the 30 to 40 percent range for the past several quarters, our analysis suggests that CNet’s core tech ad business, which we believe represented 65 percent of total company revenue last year, is on pace to end 2007 down 3 to 4 percent.”

Facebook made a similar mistake. In the desire to increase growth Facebook opened their social network to everyone, a mistake that will remain a hurdle for the company. The headline drawing decisions made by Facebook lately would have been fine with their original core audience (college students), which Zuckerberg knows, understands and relates to. Older members saw through the alleged shady practices Facebook tried to implement, placing the company in an awkward position. The open network will continue to draw challenges Zuckerberg would not face with a younger crowd.

Business strategy matters. Do not forget that.