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12/20/2010 Digital Growth: Scale or Jobs?

Investors are flocking back to digital, after surviving one dot com bubble ten years ago. Venture capitalists are pouring money into social networks looking for the next big thing. What does the next big thing look like?

Right now it probably looks like Facebook or Twitter, two social networks that have the advantage of scale. What that means is that they are built on relatively simple platforms geared for growth. The more people who participate in these social networks, the larger the platforms grow. The best thing about these investments, from a VC standpoint, is that you don’t need to scale up the number of employees to match the growth of the platform.

The value of these scalable social networks is size and a promise: once the network gets big enough, you can monetize it (eyeballs being the operative word ten years ago, while today we use engagement).

On the other hand, there are a few social companies that don’t scale well. James Surowiecki wrote a telling article about Groupon in this week’s New Yorker. Groupon’s product is labor intensive. They need to find deals and then help promote them. Groupon has 40 million subscribers and 3,000 employees. The scalable Facebook, on the other hand, has 500 million users and 2,000 employees.

One big difference is that Groupon has made money from the get go. So if you were an investor, would you invest in the sexy promise of scale, or the slower, profitable labor-intensive value? 

To be honest, after reading that article, I have even greater respect for Groupon. Why? Because they’re providing the jobs we need in the digital sector. That’s something we usually don’t talk about all that often. Yes it’s great that Twitter and Foursquare can start up with a few people. But it will be really great when they provide hundreds or thousands of digital workers with inspiring jobs.

The digital age has made us nothing if not impatient. We want things bigger, faster and cheaper. The Groupon story also poses a good question for all of us:

What type of business are you building? For quick scaling or growth through jobs?


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