Facebook popularity will decline because of a wrong business model

In Dutch culture people rarely stand out of a crowd. There are a lot of sayings that (badly translated) essentially say something like: “just act normal, that’s crazy enough”, or “don’t stick your head out”. We all try to fit in, be the same and feel uncomfortable when people stick out of the crowd. If someone performs better than others, he or she almost apologizes for it (I was just lucky). In Holland it is not abut winning, it’s about playing the game. That’s probably why we will never win the world cup in soccer, in general perform good but not great on important tournaments like the Olympics or world cups.

Interesting enough a very similar tendency can be seen when people discuss the success of web companies. There are a few untouchables, companies we never speak badly off. Google is great, and there isn’t much it can do wrong.

In other cases however we tend to be more harsh. Think about the monopoly Microsoft had the past years and the way people started reacting to that. In some cases this leads to annoying customers or press, but sometimes it also leads to innovation and competition. If Microsoft hadn’t tried to monopolize their Internet Explorer there wouldn’t have been a Mozilla organization that is now celebrating it’s incredible 500Mlnth download of their popular Firefox web-browser.

It seems that when a new web initiative is showing incredible growth figures we tend to wait for it to start making mistakes or showing decline again. After the initial “wow” people start thinking about how this unnatural growth can’t go on forever and when that day comes, we all knew it would happen, right? This is exactly what seems to be happening with Facebook right now. They have been able to create unprecedented growth in the past 2 years and are now one of the largest Social Networks worldwide. But now bloggers are declaring Facebook to be dead after they had a first dip in their growth figures. In January 2008 the number of Facebook users declined from 8.9Mln in December 2007 to 8.5 Mln in the UK. This was the first decline after a 712% growth overall in 2007.

Why does Facebook stir up such emotions? Why are people waiting for them to fall? Is it because they grew too fast? Because they are constantly measured against the success of Google? Is it because Mark Zuckerberg seems to be having a difficult relation with the press and the blogging world? Or is it because people just love to see something so successful break down again?

I’m not sure. But I do know that screaming out loud Facebook is dead because of a small dip in the number of users in just one country is plain stupid. There are web services out there that wouldn’t mind having such a dip if they also had the number of users and traffic Facebook still has.

Personally I think Facebook will face some really difficult times and I have doubts if they will remain as popular as they are today. But I’m not basing this on a small dip in the number of users. I’m basing my opinion, for what it is worth, on their chosen business model. Facebook has fallen into the $16 bln advertisement trap and they can’t and won’t get out of it. I started a countdown on the downfall of Facebook a while back already. The business model, based upon providing a free service and compensating that with ad harassment, has an incredible upside. It allows services to attract users really quickly and show remarkable growth figures. But with the almost unnatural growth comes the pain. Facebook has faced platform issues. They face the backlash of unsatisfied users that organise themselves in protest groups within Facebook. They face the press and blogging fury that arose when they tried to monetize the build network using SocialAds and Beacon. They have to deal with friend spamming, which is caused by 3rd party application builders that want to lift off of the success of Facebook to create their own glory and fortune. And now they face the press that can smell blood. And all of this isn’t because of Mark Zuckerberg, the incredibly childish or lobotomy like applications Facebook has to offer its users. It’s the business model.

If your business model is based upon monetizing of the Social Graph or network that has been build then you are bound to make the network more valuable than its users. It means that spamming friends is ok, because in some cases these friends might just sign up for yet another zombie-like application. It means that showing ads to relevant profiles is more important than trying to get a meaningful interaction between a user and a brand. It means that customer lock in is much more important than customer or data portability. It leads to the false illusion that sheer numbers of traffic and number users are more important than the quality of the service you provide. And most important of all, it distracts you from the one thing that makes you different from all your competitors. The fact that you are there to provide the user value. Once you lose that notion, your business is likely to decline. And that is what will happen to Facebook and the like in the end. As long as they aren’t monetizing user value, they will be fighting a cause that will be lost in the end.

That is why we like Google so much. Google monetizes user value. They use advertisement, just like Facebook. But they have managed to make the advertisement in itself valuable within the context the user gets to see it.

That is also why Firefox will win in the end over Internet Explorer. Not because of their 500Mln downloads or their technically superior product. No, it will  be because they have chosen to open up the browser. to develop and innovate it with and by its users. To be open about the mistakes they have made and the bugs it still contains. And the assurance they will resolve those to make it a better product.

Facebook isn’t going down because we are all jealously waiting for them to fall down. Facebook is in trouble because they are forgetting the one thing that is really important in business. Provide the customer with value!

I will end this by quoting Rolf Skyberg who has said it better than I could have:

This “luxury lens” also puts close scrutiny on some topics like “social networking”. Is the value you get out of social networking in any way a luxury?

If you had unlimited resources (money), could you deliver a better and more profoundly useful experience than we’re seeing with FaceBook and MySpace?

If the answer is yes, then you should get on building it, because obviously somebody is not delivering on an opportunity.

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This entry was posted in advertisement trap, Beacon, Facebook, Facebook application, Firefox, Microsoft, Rolf Skyberg, Social Graph, social networks, SocialAds, Uncategorized and tagged , , , , , , , , , . Bookmark the permalink.

7 Responses to Facebook popularity will decline because of a wrong business model

  1. joe says:

    ahem…. Facebook hits 150m users…..

  2. @Joe. Yeah, isn’t that amazing. I never expected that to be honest. And for what it is worth, they will still have a hard time with their business model ;-)

  3. Mark says:

    They just went over 200+ mil. users. I think you might want to rethink this over.

  4. LP says:

    I think what Alexander is saying is still relevant at 150m users, 200m users and up. They still struggle with making enough money to run the business. They just sold another 2% of the company for $200m. If their business model is to just keep selling a piece of the company to keep operating, that obviously is not sustainable when the sellers eventually reach no ownership to sell.

  5. Konstantin says:

    FB is profiting from the ad money running away from TV. They are in the sixth + quarter right now – June 2009. But still, interpretive ad is not sustainable…

  6. Phil Novara says:

    Its been long noted that FB lacks a sustainable business model. Now will this be a direct hit to their downfall? Doubtful…the user value still lies in the platform as a base for social interaction.

    As a company they cannot sustain profits without a business model. As a social user platform the value still withholds through the ability to connect with your friends. Which is proven through their continued growth from 150-200mil users.

    Bottom Line:
    Popularity will not decline because they lack a business model. The company will decline because their business model cannot keep up with growing popularity.

  7. Benjamin says:

    They have gone enormously spread in a big way. It has gone beyond control and to make is back into control is considerably tough or a never ending task. The decline of facebook will be, when it becomes a threat to it users in many ways which the company does not recognize, which is already happening. Humans are the users, its complicated.

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