Commentary

Why Facebook Will Fail

Last reports I saw had Facebook at over 200 million active worldwide unique users (and growing) and an estimated $200m-plus in annual revenue in 2008.

Pretty kooky to claim it'll be a failure, eh?

Let me start by saying that social networking itself is a utility that is not routinely differentiated by any particular protectable intellectual property. It's a utility that demonstrates a better way for the online and mobile web audience at-large to connect with each other. But it's also a utility that ultimately threatens to be its own worst enemy.

The context of Facebook is "social networking." It's all the rage right now-the novelty of connecting or reconnecting, of building your network, of watching the torrent of trivia flow to and from your network of peeps. But ultimately we as people-at least most of us-aren't social networking hobbyists. It isn't one of the "three things" I'd choose to do in my leisure time. But I do ski, mountain bike, camp, fish, and adventure travel. We are pet owners, golfers, mothers and fathers, gardeners, foodies, and a myriad of other passions, hobbies and industries.

Facebook simply cannot be the best at serving each of those niches or mega-niches, and what Facebook offers at its core *will* be offered as well (and likely better) by niche social media programmers. In fact, as frameworks for utilities such as social networking, media sharing, micro-blogging, etc. improve and evolve, and the understanding of how to employ them becomes more pervasive. The "tribe leaders" for those multitude of affinity groups are more and more likely to be classic magazine publishers, narrowcasting cable nets, specialty web destinations or other media companies (old and new) who cater specifically to that niche market.

There is no barrier to, say, a soccer gear company or a soccer magazine to offer to their specialty community of millions of street soccer players an iPhone app that sits side-by-side to the Facebook iPhone app. If the gear company or magazine *gets* social media and how to properly create and program that app for their community, at any given time the soccer lovers will activate the soccer app long before they open Facebook for anything that relates to their passion/hobby of soccer.

Some might say-well, Facebook could just offer "groups functions" to its users. Yep, it could (and does).

Two reasons this is fraught with problems:

(1) "General" is rarely as good as "specific" in engaging an audience, given equal utility.

Generalizing a technology platform to accommodate all the idiosyncrasies that might appear across thousands of affinity groups and their native behaviors isn't easy, and perhaps not possible... at least not likely as doable as a singular entity focused on a singular community; and

(2) Competing directly with trillions of dollars of economic momentum is hard.

Classic media has woken up to social media. Facebook will be competing directly with major media groups (and savvy brand marketers and advertisers) who are now "getting social media" and have awoken to the fact that they should not be intermediated in their relationship with their affinity group communities... and don't have to. Online and mobile web now have achieved primacy as a mechanism to engage humans. Companies who spend the time, money and effort to engage an audience of any kind via other media-print, television, film, radio-are getting better at using that existing relationship and marrying it with a web/wireless engines of engagement that they ultimately lead and influence (I hesitate to say "control" as that would be antithetical to a well-considered social media strategy).

So where does that leave Facebook? In trouble. With depressed CPMs around general social networking "content," the context of which they cannot assure advertisers will be safe or appropriate, and fighting with big media brands who know how to serve large slices of the Facebook audience better than Facebook does. Even potentially fighting with big advertising brands who may have social media aspirations of their own (read: can more cheaply and effectively reach a target affinity group using their own engines of engagement than "buying space on Facebook"). And certainly fending off upstart "next generation" social networking engines, while struggling to keep users who have a very low cost of switching to the next best thing, and that next best thing may indeed be a social nichework led by subject-matter experts.

While it is likely that Facebook will find a viable and scalable business model somewhere within the monthly engagement of 200 million people, its future is anything but certain.

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13 comments about "Why Facebook Will Fail".
  1. Walter Adamson from NewLeaseG2M & Social Media Academy , June 16, 2009 at 9:09 p.m.

    I'd been on a train of thought that FB was going to actually take away from some of the other niche networks like Linkedin, but perhaps not if your logic holds. Niche groups have worked well, and Facebook sets the standard for a platform, I guess others can learn and move to the next level. Thanks for the thoughts.

  2. David Fuller from Pilote Media , June 17, 2009 at 4:26 a.m.

    This is a very industry led view that doesn't take into account how real people think. When real people go onto facebook they aren't thinking - ohh I feel like a spot of social networking with the niche group I identify with - they think - I want to see what Joe is up to, or I'm sure it's Michelles birthday in June, I'm going to check on Facebook.

    This is like saying that Walmart will go broke because there are boutiques that offer a more intimate environment.

    Niche networks are fine, but they can by definition never be as big as a network that is defined by an individual and their friends. In the real world, my friends don't all follow the same football team. In the real world I don't have to like or interact with someone just because they have the same phone as me.

    My friends are my friends. They are not market segments, they are a collection of unique individuals that I have 'collected' over a number of years. Facebook helps me keep in touch, helps me share in their lives even when I am on the other side of the world.

    So my argument is that because it is generic, Facebook can serve the ultimate niche. The individual. I would much rather be judged by my friends than my consumer choices.

    I would also argue against the assertion that there are no barriers to entry for social networks. There is the network effect. There can only be one or two social networks. The fact that I can go onto Facebook and find 90% of my friends is its strength.

    Niche social networks have to convince me that talking to a stranger who happens to like the same brand as me has more value than talking to a mate. I don't think so.

  3. Gary Wells from Dix & Eaton , June 17, 2009 at 6:38 a.m.

    I don't think Facebook will fail. But I do think companies that try to use Facebook will fail. The reason, and this is part of the argument above, is that almost every voice gets lost in such a mega network. In this space, as the old movie trailer goes, no one can hear you scream. To be successful in reaching audiences, you need to create individual accounts on Facebook - and every other of the mega networks - to reach precisely the demographic group or geographic region of importance to you. Or you will fail in how you use Facebook. But Facebook itself is going to be increasingly popular - for gossip.

  4. Gerard Mclean from Rivershark, Inc. , June 17, 2009 at 7:19 a.m.

    As an owner of a niche soccer industry company, I can say with 100% certainty that you are dead wrong about WHY Facebook will fail. Actually, the reasons you cite are why it is successful. Facebook is a hub around which all your interests are built. People care about their LIVES, which are made of up varied -- and dynamic -- interests. Interest-specific groups ballon out quickly, but immediately shrink back once the user discovers there is no way to accommodate the other areas of their life.

    Services like WePlay.com are limited because kids play soccer, they go to school, they have social lives outside soccer, they play an instrument in the band, etc, etc, etc. Facebook can encompass ALL of that, like a Venn diagram fro live. Niche groups can't.

    So, unless Facebook gets really goofy and starts building thick walls that don't play well with others readily, it will probably have a long life.

  5. Kai Rostcheck from Idea Guy , June 17, 2009 at 7:54 a.m.

    Jim I really appreciate your willingness to run upstream as a contrarian. Your points are well described, but I think there is an essential and even more crucial factor that you overlooked: if Facebook fails it will be because they become a victim of their own success.

    Their company launched into a space where it was fairly easy (relatively speaking) to differentiate themselves and pioneer compelling, user-friendly architectures. Now that there is such a wide and rapidly growing array of competitors, the central question will be whether Facebook's management team and developers can move quickly enough to stay ahead of the curve.

    My take is that they need to focus on making the central platform even more open source than it already is. That path comes with its own inherent pitfalls too, I realize.

    Historically very few technology companies have been able to successfully change along with Sea Changes in the market. If I were on the Facebook management team I would be studying IBM's success and learning how they are able to constantly reinvent themselves.

  6. Khalid Nurredin from VEGAS FLAVA ENTERTAINMENT , June 17, 2009 at 10:06 a.m.

    Facebook is filled with 300 million boring people doing a whole lot of nothing.Quite frankly,people who are into music.movies and comedy are glad these boring people have moved on to Facebook from Myspace. When was the last time YOU bought something from an advertiser on Facebook? When the Russian money runs out Facebook is dead meat.I don't want to hear about your boring life,or that your kid is now potty trained or be friends with your mom.MySpace is far from dead,and Rupert (even though I don't care for him) will make it profitable.If you don't like the frenetic pace of Myspace,take your old boring a** to Facebook and stay there,while you can. Facebook is like the Lawrence Welk of the internet.Terminally boring.Next thing you know they'll be having polka contests and advertising Metamucil. Facebook WILL fail.NO INCOME.

  7. Ryan Keeler from The University of Texas at Austin , June 17, 2009 at 12:26 p.m.

    Part of me really agrees with the claim that Facebook will fail. One thing I think should be added to that statement is "with the post-college crowd." For the college kid, Facebook isn't social networking. It's socializing. Freshmen in college use Facebook as one of their opportunities to make friends (really, it's more like bringing last night's acquaintance to a slightly deeper level). Just look at the number of instant-message-style posts which appear on the average college student's wall.

    Because of this nature of Facebook among the college crowd, I think students have a very real reason to regularly engage it. After college, however, I can absolutely understand how social networking might be engaged on a more niche-based, keep-up-with-my-deeper-interests level. Many of my friends and I have already begun the shift away from mass-appeal social networking to more niche-oriented platforms (Eventful, Songza, etc.). This, for us at least, is because we a) don't feel the urgent need to make new friends which the college Freshman feels and b) because we now have better means of ice-breaking at our disposal (after-work happy hours, rec sports leagues, etc.).

    To sum up, I think Facebook will continue to be successful with their original (or second, to be more accurate) primary audience--college students.

  8. Janet Hall from Animals.com , June 17, 2009 at 1:10 p.m.

    Jim, I think you are mostly right, particularly on the "niche" vs mega-niche concept. In a way, the evolution is a bit like that of Web 1.0: big portals were initially huge successes, but they lost a lot of ground as the technology changed and audiences became more sophisticated. From my perspective, the future will be built around smaller but more focused audiences. I think that's how we'll get over the "how do we monetize this" issue and begin to create value around content.

  9. Brogan Keane from Fuego Nation, Inc. , June 17, 2009 at 6:37 p.m.

    It's hard to imagine that a company that offers such a value-rich product, validated by hundreds of millions of users, will actually fail. If Facebook fails it won’t be because it didn’t have the potential to deliver monetizable value but rather because it lost touch with its core competence—providing tools to keep in contact with one’s contact base.

    The fact that Facebook is weak in stoking the specialized passions of its users does not stand as testament to a foundational business flaw. It only speaks to a use case in which the product does not excel. Were that area deemed core to Facebook’s business success then one might agree more with the premise of your opinion. However, Facebook does little to enhance and promote its groups. In fact, joining passion-based groups is cumbersome, inefficient and confounding. Try to find a high quality ‘Yoga’ group to stoke that passion for Bikram. There are literally hundreds of groups to navigate through, most with indistinguishable names and quality levels. Yet the fact that this is true, does not invalidate the overall business opportunity.

    The core reason why we’re building Fuego Nation is to serve the weakness in social media around stoking individual passion areas. However, it is a foundational premise of our business that to make these niche-oriented products work, there needs to be a platform that establishes powerful user experiences and high quality payouts between groups. So whether you search to stoke your golf passion on Facebook, Google or Ning the result will be the same—indistinguishable groupings with dramatically varying service quality. The core to creating a useful passion-based experience, as many of us have multiple passions, is to provide an environment where one can move in and out of various passion groupings over time with a singular user experience and quality level between them all.

    Facebook is a social utility that keeps you connected with your friends. As long as the company focuses on that core vision and continues to excel it’ll be wildly successful.

  10. Josh Lovison from Josh Lovison Consulting , June 17, 2009 at 7:50 p.m.

    Stop looking at Facebook as a social network.

    Even Facebook is over Facebook.com. Facebook is moving steadily toward becoming a platform - a layer to the web much as AdSense, site-powered search, and browser integration cemented Google's presence.

    I use Facebook constantly, but visit Facebook.com only once a week max. Much like Twitter, the touchpoints for the site's services are third party solutions, not the website.

    Facebook Connect changes the game as well. On a number of the "niche" sites I visit, I just use my Facebook credentials. Similar story happening with iPhone apps as well.

    Other initiatives, such as Pay with Facebook or their upcoming efforts in the app marketplace again point toward a "platform approach." I'd say of any internet property today, Facebook seems to be taking the most intelligent approach to remain relevant as the web evolves away from single-site models.

    So no, I don't think they will fail.

  11. Elise Richardson , June 18, 2009 at 9:55 a.m.

    i think we all expect there to be some sort of failure as is only natural that some other startup will come and eat FB's lunch - just like FB did to MySpace.

    however, i think that in Facebook's case a huge factor will be all of these companies jumping on board and creating pages. before, facebook was just for individuals looking to stay in touch with each other. now, businesses want to connect with the users too and i think that eventually the businesses will overstep the boundaries and spam too much. just like they did with email and display advertising.

    it's only a matter of time before there is a backlash from the users who are sick of being targeted and having their information sold - people will flock to whatever new platform allows them to connect with each other just as well but without corporate involvement.

    guaranteed it will be some kid in college who combines the best of FB, Twitter & MySpace into one super social platform - and he'll win because he listened to the users.

  12. Melanie Pursglove from BuzzLogic , June 19, 2009 at noon

    I agree with David Fuller, to say that Facebook will fail because it's not niche enough is frankly really silly. I like the Walmart analogy, that pretty much sums it up!

    Facebook isn't at its core about affinity groups and hobbies and that's not what it's rooted in. It's rooted in the idea of socializing. Social networking may not be a hobby but socializing certainly is. Whether that translates to advertising dollars in the long term is definitely a valid question - contextual relevancy and appealing to specific interests is obviously a key part of successful advertising - but its not the only part and key niche interests will always be using Facebook as long as people are. To say that magazine publishers and cable networks are going to re-invent the wheel in this space to appealing to interests is absurd. If interests meant more than interaction then magazines wouldn't be in the toilet right now.

    I don't think Facebook will depend on advertising to stay afloat. Look at Wikipedia - huge site, used ubiquitously and is supported totally by donation. Facebook staying afloat will depend on its ability to continuously appeal to generations, not to advertisers. If he is talking about failing simply as a cash cow, then maybe he has a point, but as long as Facebook is this popular, advertisers will come.

  13. Andre Szykier from maps capital management , June 22, 2009 at 6:38 p.m.

    A more important consideration is the evolution of the platform.

    Just as Google's Android loosened the grip of mobile device OS providers, so will open source initiatives such as Open Social APIs make it easy for anyone to roll their own social network without having it parked at a SM site.

    When you can create a virtual social group, self-branded, acting as its own publishing site, then it does not require a Facebook for hosting. You can proxy any application site to feed your network music, blogs, photos etc. making them carry the overhead while you become the access point for viewing by you and your friends.

    Couple this with a peering network, plug in a Google search engine, grow your network and next thing you know, advertisers will be paying you as a publisher to display video and interstitial ads.

    In a way, site-based SM today is building the foundations for virtual SM tomorrow.