6th November 2007 Facebook launched its new advertising initiative. It would make money from advertising by allowing its users to become fans of business and recommend this to friends as well as a variety of other features like allowing businesses to create their own Facebook pages. As I sat their listening I came to the conclusion that what I was hearing was the beginning of the end of Facebook.
When Friendster launched in March 2002 it quickly became one of the leaders in social networking. Interestingly Google offered to buy Freindster for $30m in 2003 and was turned down, which has become considered one of the biggest blunders in silicone valley history. So they turned down the money believing themselves to be on a trajectory that would continue and increase their value exponentially. In April 2004 Friendstar was overtaken by Myspace. The reason it was overtaken was due to the technological advances that Myspace offered and whilst this is a different reason to that which I predict will cause Facebook to decline it is the pace of decline that I highlight.
Myspace was launched in August 2003 and it took just 9 months to overtake the biggest player in the space that at the time was considered invincible. What this demonstrated was not only that the users of Friendstar were fickle and lacked brand loyalty but that Friendstar didn’t own the brand - the users did. I think this is the mistake Facebook is making.
I have been reading the blogs about social networks and the mood is unsettled. Mention of the need for an Open Source alternative where the community can own the solution has been muted. They don’t like the fact that ‘their’ social network is being abused in the way Facebook intends. And this is the point. The users believe they own the brand and so does Facebook. One of them is wrong and no prizes for which I believe it is.
Of course this raises the big issue of how social networking sites monetise the value of their asset in a way that doesn’t upset the user base but at the same time differentiates them with the market? As most are owned or seek ownership through a publicly listed company they have a requirement to increase shareholder value and the markets demand significant returns.
I predict not only a massive ‘adjustment’ in Facebook’s user community but also some pretty big balance sheet write-offs as the acquirers realise the short term revenue model is vulnerable. In the long term I think organisations will find ways of generating revenue but a great deal of consolidation and readjustment will take place before we get there.
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