Perhaps the strangest feature of the Facebook Phenom is how pervasive the network has become, how much time so many people spend on it, and how little we actually talk about it. This is a taproot of the crisis in valuation that has led the stock to sink today down above the $26 mark. I’m not bearish, at least in the short-to-medium term, as Facebook is making money and may yet find ways to make a ton of money. I’m more, shall we say, weirded out by the whole situation.
I’ve touched on this before, but to sum up and move along a bit here are some key statements I would wish to defend:
1. In general, I’ve argued that social media will soon be utilities, interoperable, and therefore not capable of generating economic profit or, in consequence, justifying these very high valuations. The future is not an AOL-style walled garden named Facebook with X billion inhabitants.It is something a lot more like the USPS. Or the power grid. I don’t know how long “soon” is. But it’s soon.
2. Back to my point about lack of discussion: My suspicion is that most of the enthusiasm for the Facebook Phenom has come from two groups: Generally older people who have little first-hand experience of social media (little, not none) (Group 1); and much younger people whose entire experience has been decisively shaped by one social medium, namely Facebook (Group 2). Group 1 has generally looked to Group 2 to confirm its sense that the Facebook Phenom is a big, big deal – whether their kids or the youngest people on their staffs. This scenario offers, at the least, a rather dire approach to risk management.
3. In the article linked below, an analyst has pronounced that by 2020 Facebook will have gone the way of Yahoo – still likely a profitable enterprise, but with far lower value and in a position of strategic insignificance. He is probably correct, although his focus on the problematics of mobile may be wrong. We all know that the shift to mobile, which is more rapid than anyone expected, has proved challenging as ad revenues are much more difficult to come by in the mobile environment. My suspicion is that Facebook like the many other companies caught in the same situation will come up with some ideas that work, even if they are not obvious today. In parallel, the shift to mobile may help power the move (which I see as highly desirable and in the long term inevitable) to subscription-based social that is protective of user privacy. And, at root, while ads make a lot of sense in search, they make little in social. There are other ways in which companies can occupy social space (branded high-end content will become increasingly important, for example), but if you want to see your friends’ pics you are not ever going to be that interested in clicking links for autos.
4. Sorry, many smart people, but the idea that Mark Zuckerberg‘s very clever development of the Aol/MySpace enterprise will end up as a multi-billlion-member walled garden I find risible. Aside from the glow already fading from what was once almost (never quite) hip, as granny signs on, there are just too many reasons why barriers to entry will fall (or be knocked down by regulators) and basic social become part of the comms wallpaper.
Which draws attention to what I find enormously creative and popping with potential about Twitter. Facebook is very complex, keeps getting moreso, and has really only one core role. Twitter is very simple, has stayed that way, and has many roles. It’s the pathway to tomorrow. Which is one reason I hope it can be saved from the Facebook IPO fate by something a lot more creative in the financing/governance arena.