If you’re anything like me, you find this whole Facebook saga utterly fascinating. The opinions, debates, inner conflicts and mixed emotions (Do we love it, do we hate it?) all continue to fuel a search for answers. It could turn out to be one of the greatest enigmas of our time. Here Facebook has 900 million users and we can’t figure out, let alone agree on, whether it has any value or not. And if it does, there seems to be an equal amount of confusion about what that value actually is.
Part of what makes this so interesting is the way in which Facebook evolved. Initially it was about “friends.” You know, connecting in a new way with the people whom we knew and presumably liked. Then, it changed into a weird competition where the name of the game was to collect, acquire and accumulate more “friends.” The focus was not so much on friendships anymore, as it was how many friends one had. How high school. Nonetheless, it wasn’t cool to have just a few, and by few, we’re talking a measly 50 to 100. Facebook spread like wildfire and the concept of “connection” quickly came to mean that human contact was no longer a necessary ingredient in relationships.
But now, in light of the recent IPO, the lens through which we contemplate Facebook has shifted again and the question of value is back on the table. This time though, it’s happening on Wall Street’s terms in hard dollars, cents…and shares. Specifically, in its lackluster debut, many are wondering how viable a business model it is.
Rita McGrath wrote a fantastic piece in Harvard Business Review that talks about how one of Facebook’s biggest challenges is going to be turning “user behavior into buyer behavior.” The problem, she explains, is that there are certain sequences that link the steps of a sale together, and that these steps are inherently missing in Facebook. She’s right. Meanwhile, others like Zach Prochnik, an 18-year-old teenager who talks about why he quit Facebook, reflected in The New York Post how its shallow nature impacted the quality of his life. And finally, The Wall Street Journal covered the recent story that GM had decided to pull ten million dollars worth of ads noting that they hadn’t seen an impact on sales.
Some argue advertising is about impressions and that no one should expect a direct correlation between ads and sales. The assertion here being that there is a cost to brand a company, which requires constant and ongoing exposure. So say we follow that logic for a moment. The problem is that Facebook does not provide branded impressions for the advertiser. They all look the same and heck, many don’t even don the company’s name. In fact, the words don’t offer much of anything brand-wise either. Instead, they say more to persuade the customer to click than they do about the product or company. Even then, what do so many companies spend their money trying to get customers to do? That’s right. “Like us.” But liking isn’t buying and for all intents and purposes, in business terms, is worthless.
That’s not to say there aren’t advantages to creating and audience and connecting with them on Facebook. GM says they will continue to employ their online social media strategy on the network by using it as a way to communicate with their customers. But that’s a problem for Facebook. If even the advertisers opt to use it as a free service, this company will quickly become a whole new kind of not-for-profit.
Still, many experts believe the real value lies in the money that can be made off the swelling number of eyeballs rapt by the stream of information and trivia updating newsfeeds by the nanosecond. Maybe, in theory, this is true. But not if those eyeballs are more interested in themselves and what their friends are doing than they are in the pesky, persistent ads that aren’t distinguishable enough to stand out and ultimately blend into the rest of the background.
In some ways this whole thing makes me think about how Starbucks changed the world in a similar way when they completely redefined the process of ordering a small, medium, or large coffee. Shoot, they redefined coffee, period. In both cases a whole new language emerged and it stuck. Each successfully changed the world as we know it by creating an experience with a community around it. What’s interesting to me is Starbucks used the idea of people connecting to revolutionize how we meet and gather and so did Facebook. Fortunately for Starbucks, the coffee is attached to the experience and people are willing to pay a premium for it. Facebook on the other hand, is free.
So, in a nutshell, as far as business models go...
- Facebook offers a service for which they don’t charge -- 900 million signups later.
- The service that it does provide is a notorious waste of time with little substantive benefit to the consumers.
- One thing we do value is time, which inherently makes Facebook vulnerable.
- When the mere whiff of fee-for-service circulates, all hell breaks loose, full of fury with threats to abandon and promise of an absolute revolt.
It's basic economics really. You can't make money on something that is free. And if you're counting on advertising, which Facebook is, it's only going to be a matter of time before companies learn that they can't brand their products or services with brandless ads. So, what’s Facebook worth in hard-core cash? Apparently, not much.
If you found this post interesting, I hope you'll join me on: