Why facebook can only fail
Facebook has been making the headlines for its recent IPO and its valuation at over $100 billion, but is it likely to drive the social platform on to further success? Digital Futurist Mike Ryan of Fusion Futures categorically says it won't.
It may sound bizzare to write this of a company artificially valued at over $100 billion but the writing is on the wall to see.
Firstly facebook makes its money from mining our personal data and selling display advertising which we all largely ignore. This form of advertising has been around since the dawn of written communication and quarter by quarter is cheaper and less effective. We’ve grown immune to its presence. How many brands have actually made a success of entering facebook? As a social network 99% of activity is social and brands have often made the mistake that they can invade social space without damaging reputations.
So online advertising is less and less effective. The next wave in advertising is set to personalise the experience through mobile devices and internet enabled public screens. Whether we have the appetite for this is to be seen but all the major hardware manufacturers are developing insight led advertising systems which claim higher impact that anything that’s come before.
In the face of this pure internet advertising is looking rather like the newspaper classifieds did two decades ago. The writing was on the wall then and is now.
Secondly facebook doesn’t play fair with users on privacy and its getting greedier at what it mines. The EU think so and anyone who has tried to change privacy options will agree. All that data may be there for facebook to monetise. The trouble is we’re smarter consumers than ever before and governments are acutely aware of the power of global internet brands. Legislation and consumer anger will kill the golden egg that facebook has laid. It realises this and is taking more of our personal data:
In December 2005 Facebook stored users name, profile photo, gender and networks to sell to advertisers. By April 2010 it had added photos, friends, wall posts, likes, family members, place of birth and religious affiliations.
Where does this leave facebook? The magic it peddles as offering a new way for marketing and advertising to operate is smart, but flawed. Any business worth $100 billion needs to show what returns it can make on 800 million free customers. Unless it can unleash a new business out of its publicly sourced data (such as twitter has done with the firehose) it can only decline as ad revenues decrease and costs of another 100 million customers eat into its profit. The CPM (thousand ad impressions) for Facebook and other high traffic sites is now worrying all the owners as the race to the bottom is well underway.
When you look at facebook you see a company run by some very clever technologists - but marketing and revenue just aren’t in the companies DNA.