I was fascinated by a recent report that Upworthy, Elite Daily, and Distractify--buzz-based content repurposers whose "viral" headlines have plagued my Facebook feed--had seen their traffic drop by 50% after Facebook changed its news feed algorithm:
The rapid decline of these previous "hot" startups illustrates a basic principle of business. You have to ask yourself, "Do you have a relationship with your users?"
Search and social are the biggest drivers of growth on the Internet. But if you rely on search and social to provide your users, you put yourself at the mercy of Google and Facebook. (I don't lump Twitter in because Twitter acts more like a neutral third party--you see the tweets of people you follow, and Twitter only adds editorial suggestions on the margins. In contrast, Google's search results and Facebook's News Feed are totally curated...I can't even figure out how to see a full list of Facebook updates from my friends, a la Twitter.)
Just consider the wails of despair every time Google updates its search algorithms, or hands out the "death penalty" to companies like Rap Genius that try to game the system:
Sure, Google relented, but I think it's pretty clear who has the power in that relationship.
Jonah Peretti of Buzzfeed argues that Facebook is like a cable company, which can decide which channels to carry. This strikes me as a reasonable analogy, but it overlooks the most dominant force in television: ESPN.
When it comes to the cable companies, ESPN holds the cards. Because of the relationship ESPN has with its viewers (specifically men), no cable company in America can afford to not carry the channel. As a result, ESPN can charge $5 per month for every cable subscriber in the country, whether or not those people ever watch it.
ESPN has the loyalty of its users, which allows it to dictate terms that every other cable channel envys. If Facebook decided to give Upworthy the death penalty tomorrow, few Facebook users would care. I would welcome that move. But if any cable company tried to drop ESPN, it would be burned to the ground.
Search and social are the key to organic, cost-effective growth for startups. But make sure you develop a real relationship with those users, or your business model will only work as long as Google and Facebook deign to let you live.