Facebook – is it going anywhere but up?

[First posted on January 12, 2011]

Today, I read an article on the New York Times about MySpace laying off half of its employees. Tragic news, really. Industry observers are referring to Myspace’s downfall as a precursor to Facebook’s eventual demise; some are going as far as predicting its imminent end this year. Before I continue, I feel obligated to mention that I’m not much of a stock investor, nor am I anywhere near being familiar with the nooks and crannies of the venture capital funding business.

A lot of negative talks about Facebook’s latest valuation of USD50bil came under extreme scrutiny by industry observers were along the lines of Facebook’s inability to generate advertising revenue the level that is acceptable of the valuation – and at current value, it should hover at about USD30bil. To that effect, Goldman Sachs’ USD450mil investment into Facebook was deemed extremely risky and an unnecessary one to tax payers’ money.

Genuine concern here, I have to admit. However, I’m inclined to give Mark Zuckerberg the benefit of the doubt to be able to see a future no one can; you have to give him credit, he has done it at least once already. In a fragile economy such as the one we experience today, it’s hard to blame anyone to be more cautious with where money should flow. And probably to a lot of people, Facebook’s just a money-burning business with the amount of servers required to maintain the site that has now over 650mil users worldwide. Who would’ve thought they’d reach such a milestone? May be not even the Zuck.

One fundamental difference between the fall of MySpace and the eventual, wrongly predicted fall of Facebook is summarized aptly in this: “The paradox in business, especially at a public company, is, ‘When do you focus on growth, and when do you focus on money?’ ” said Mr. DeWolfe. “We focused on money and Facebook focused on growing the user base and user experience.” This cannot be any closer to the truth the business Facebook is turning into: a communications and utilities platform built on social network foundations.

MySpace was cluttered, flashy, populated by anonymous user names, driven by rock bands and emerging artists, and most tragically filled with ads that most of the time were of questionable nature. Like how Tim Arango, the NYT writer of this article, pointed out Facebook came into the party with a clean, Google-like interface. You also needed to tell people your real name; if anything was a game changer element in social networking, this was it. Facebook now has the richest database of people that no other business in the world can claim to have, not even Google. Personal information as real and accurate as it can get, short of asking tips from the government. All thanks to our hunger of being constantly socially connected and our natural narcissism tendencies as human beings. More so the Gen Ys, not so much the Xs.

Having a digital advertising background, I cannot stop imagining the mountains of advertising possibilities that can be turned on to leverage on the data Facebook has about its users. Taking into serious consideration the tremendous growth of Facebook so far and its potential to fuel more growth globally, would I, given the chance to work at Facebook, risk jeopardizing users’ perception of and experience in Facebook in exchange for millions (billions even) of advertising revenue? Is this too short-sighted of a plan?

I accept the realities of running a business and the vital (or a dire one in this case) need to have a sustainable revenue stream. Instead of looking at MySpace’s fall from grace as a point in case of the fickle-mindedness of social networkers and no one platform can last forever, why not take MySpace as a case study of what not to do. In many ways, Facebook has introduced and will continue to innovate new ways for us to stay connected digitally. Sometimes, we may not even realize that need until it one day creeps onto our monitors and changes our social lives again.

One question that I ask myself, more frequently these days, is whether Facebook ahead of its time. So ahead that we cannot entirely grasp what it intends to and could possibly achieve? From an advertising point of view, when has any company ever had such databases of users before? Do we really know what is the best way to leverage on this? Seriously, besides bombing display ads and behavioural targeted messages to users?

A business that is ahead of its time requires a sustainable revenue generation model of the same stature. Well, do we really have one? Should we force a half-baked, unoriginal plan from Facebook to satisfy investors and profiteers? I’m against it; you could say that’s because I don’t have a stake in Facebook but I do have a stake in something Facebook is trying so furiously to build – a better social networking experience.

*my source of inspiration: New York Times

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