We love watching far-flung friends grow up before our eyes. We love sharing our accomplishments in pursuit
of the life-affirming “Like.” We hate fumbling through layers of privacy, maintaining relationships with people we dislike, and suffering the minutiae of life in the town square.
These notions will persist, since social media isn’t going anywhere. But every great empire falls. As its forerunners did, Facebook will grow heavy under its own girth, decay from within, and collapse.
The question is, when and why will it happen?
Many analysts agree it won’t be soon. It’s likely we’ll look back on Facebook 2012 as a golden age for the company. Its traffic and user base have climbed ever skyward thanks to its posture not only as a social network, but as an identity platform — a critical piece of online infrastructure.
“I actually don’t think anything would kill Facebook in any near-term scenario,” says David Kirkpatrick, the journalist who literally wrote the book on Facebook’s ascendance. “But I do think that Facebook could enter into a phase of decline, based on a lot of different possible developments.”
The Regulatory Challenges of Building a “Parallel Internet”
For decades, the Internet has been a distributed entity. No one person or company owns it. There are rules about names and numbers — how computers can talk to each other. But if you want to access or create content there, no one can stop you.But imagine a world where Facebook is so critical to personal and corporate identity that you couldn’t communicate effectively without it. In order to access this “parallel Internet,” you’d have to go through a single company. Legally speaking, that gets dicey, according to Kirkpatrick.
“I think regulatory interference is one thing that could radically hobble Facebook, probably not kill it,” he explains. “Facebook’s role in the global economy is becoming so complex and central to communications in a very, very fundamental way. The responsibilities that come upon a company in that role are really, really challenging.”
To understand the implications, don’t think of Facebook as a website or even a social network, but as a telecom company.
“It’s really about the consequences of a company controlling a federal piece of Internet infrastructure, particularly one that has to do with identity,” says Kirkpatrick. “I happen to believe that Mark [Zuckerberg] is very cognizant of those responsibilities and takes them very, very seriously.”
Having spent a lot of time with Zuckerberg, Kirkpatrick is confident the CEO knows what he’s up against. But the pitfalls of government regulation can thwart even the most prepared.
“Regulatory interference is one thing that could radically hobble Facebook.”
“Tech companies typically disregard governments until well into their
lives, and historically don’t have a lot of lobbyists. Facebook
basically disproves that rule. Hiring [COO] Sheryl [Sandberg], Mark, at a
very early stage of the company’s development, signaled his own
understanding of the central role of government in Facebook’s success,”
says Kirkpatrick, referring to Sandberg’s prior role as chief of staff
for the U.S. Treasury Department.Beyond regulatory challenges, the very notion of an Internet operated by a single company defies the promise of the web, according to Alexis Ohanian, co-founder of the social news site Reddit and author of the forthcoming book Without Your Permission.
“A private Internet is the antithesis of the open Internet, which is a public good we all own, work and play on,” Ohanian says. “I don’t believe it’s sustainable, because it’s the openness of the Internet that makes it so valuable. It’s the most level playing field in the world.”
Ohanian is confident that the majority of web users won’t stand for a closed future. “I can launch an idea today and start drinking the milkshake of all the incumbents tomorrow, based solely on the merit of my creation. I shouldn’t have to get permission to build on someone’s ‘private Internet,’” he explains. “People will be content in ‘Facebook’s Internet’ until the experience sours or something better comes along.”
Hackers Meet Madison Avenue
Many factors contributed to the decay of MySpace, but pressure to monetize was a critical one. Felix Gillette’s Businessweek story “The Rise and Inglorious Fall of MySpace” chronicles the challenges faced by the social media juggernaut after it was acquired by News Corp.While developers at Facebook, Tumblr, and Twitter — startups backed by venture capital — were more free to design their products without the immediate pressure of advertising goals, Myspace managers had to hit quarterly revenue targets. That pressure increased dramatically in the summer of 2006, when Google paid $300 million a year for three years to be the exclusive search-engine provider on Myspace on the condition that the social network hit a series of escalating traffic numbers.Going public is much different from being acquired by a media conglomerate, but could the IPO put an indirect strain on user experience over the long term?
In retrospect, [co-founder Chris] DeWolfe says, the imperative to monetize the site stunted its evolution: “When we did the Google deal, we basically doubled the ads on our site,” making it more cluttered. The size, quality, and placement of ads became another source of tension with News Corp., according to DeWolfe and another executive…
“There was a lot of pressure to drive revenue,” adds Shawn Gold, Myspace’s former head of marketing and content. “There were things that we knew would be more efficient for the user that we didn’t act on immediately because it would reduce page views, which would have hurt the bottom line.”
“It could, and I worry about that,” says Kirkpatrick. But he is fairly confident in Zuckerberg’s ability to steer the company clear of bad revenue decisions. “Mark will not do what he does not want to do, and that’s a buyer beware statement for investors in the IPO. Nobody who invests in Facebook should have any illusions that they are going to be in control of that company.”
But some, like Dr. Eric Jackson, disagree. The founder and managing member of Ironfire Capital LLC wrote a recent column for Forbes with reasons companies like Facebook and Google could disappear within five years.
“Mark will not do what he does not want to do, and that’s a buyer beware statement for investors in the IPO.”
“People are making a lot of assumptions about how quickly they’re
going to make money off of 900 million users. History shows us that
concepts can sound great on an IPO roadshow,” says Jackson, noting the
substantial gulf between Facebook’s 2011 revenue ($3.71 billion) and the valuation of the company, which was reported at $116 billion
at the time shares hit the market on May 18. “We’re just going to know
all this information about [users] and try to figure out the huge value.
Sometimes it’s just not that simple, and things can fall down.”Jackson also warns that the culture of Facebook and its management may not align with Wall Street when it comes time to re-evaluate the business model.
“I would imagine with Facebook, they would think that the ‘hacker way’ works. ‘That’s what’s made us successful [in the past].’ But they’re still going to have to monetize in the future,” says Jackson. “I mean, the hacker way and Madison Avenue — they don’t exactly mesh cultures. And yet I could see Facebook thinking, ‘Well, this is the way we are, and the advertising world is going to have to adjust to us.’ Those are the kinds of mistakes companies make and shoot themselves in the foot. It’s slowing them down while others blow past them.”
There can’t be discussion of Facebook’s survival without exploring privacy. The network has come under fire repeatedly for terms and features that are misleading, confusing and intrusive. But it has yet to prompt any kind of user exodus.
The broad topic of Internet privacy came to a head this year as the U.S. Congress debated two important pieces of Internet legislation: SOPA/PIPA (Stop Online Privacy Act/PROTECT IP Act) and CISPA (Cyber Intelligence Sharing and Protection Act).
SOPA was defeated, in large part due to online activism. CISPA (or parts of it) is currently being debated in the Senate. The bill would let private sector and government agencies share information about cyber security threats. Its proponents argue this would give experts an advantage in fighting hackers and online terrorism. Opponents say the bill’s language is too broad, and could allow ISPs and telecoms to share private communications with the government or military under the guise of national security.
Facebook publicly supports CISPA — a detriment to its community and ultimately its bottom line, according to Ohanian.
“Reddit came out in opposition to CISPA because, even though we don’t collect much user data, we need our user trust or we lose the community,” Ohanian explains. “The community generates all the value, as on all user-generated websites. Likewise, if Facebook continues making bad decisions that jeopardize the trust of its users, they’re always a few keystrokes away from leaving.”
But does the average Facebook user really understand or care about these issues? For all its privacy missteps, users remain loyal to Facebook.
“We saw over 24 million people come out against SOPA/PIPA to stand for Internet freedom,” says Ohanian. “People clearly care about their online rights just like their offline rights.” To be fair, this groundswell of opposition only came to a head when giant Internet entities like Google and Wikipedia — whose models were directly threatened by SOPA — went dark in protest. But users did rally around the cause, even if they weren’t aware of it beforehand.
“But even more basic than bad legislation like CISPA, my dad cares when he watches a video on Facebook and doesn’t realize it’s been shared with every one of his friends,” says Ohanian, referring to Facebook’s advent of “frictionless sharing” apps, which connect to your account and automatically broadcast articles you read, videos you watch and songs you listen to.
“I don’t think it’s moral high ground, I think it’s user experience that will win the day,” says Ohanian.
Indeed, many feel Facebook is becoming too complicated — a point of frustration for new and experienced users alike. But that user experience is carefully constructed and monitored.
“It won’t be stupid interface or profile design mistakes that kill Facebook,” Kirkpatrick says. “Facebook watches the data. So Facebook knows the consequences of everything they do in an unbelievably exact fashion.”
“I don’t think it’s moral high ground, I think it’s user experience that will win the day.”
That’s why new features tend to roll out to small groups before
deploying network-wide. “If something’s wrong, they don’t change it
because a bunch of journalists write articles and complain about it. If
[Zuckerberg] changes it, he changes it because he notices users are
operating in a way that shows they don’t like it. And he studies that.”While Kirkpatrick believes Facebook needs to do a better job educating its legacy users about privacy, feature changes and data, there may not be a lot of market pressure to do so. The average Facebook user isn’t your mom or a Harvard graduate, he explains. “It’s an 18-year-old kid in a barrio in Rio on a $30 Chinese-made smartphone. They actually find Facebook easy enough to use, and they love the hell out of it.”
Web 2.0 Doesn’t Get Mobile
Eric Jackson’s column looks at Facebook through the lens of its predecessors.Web 1.0 companies never really seemed to be able to grasp the importance of building a social community and tapping into the backgrounds of those users. Even when it seems painfully obvious to everyone, there just doesn’t seem to be the capacity of these older companies to shift to a new paradigm. Why has Amazon done so little in social? And Google? Even as they pour billions at the problem, their primary business model which made them successful in the first place seems to override their expansion into some new way of thinking.He argues that as social media supplanted web portals, so too will mobile-first networks supplant desktop social media sites. It’s the natural order of things.
“Facebook didn’t become Facebook by being a better Yahoo. It became the world’s first Facebook,” Jackson tells Mashable. “What’s going to knock off Facebook won’t be a better Facebook. It’ll be something new. And I think it will be something that you’ll need for a mobile environment.”
Instagram is the poster child for mobile-only, mobile-first networks, and Facebook’s $1 billion acquisition of the photo sharing app lends credence to Jackson’s theory. Instagram wasn’t a Facebook killer, but it shined a glaring light on the network’s faltering mobile strategy.
“Facebook didn’t become Facebook by being a better Yahoo. It became the world’s first Facebook.”
“If you listened to the IPO Roadshow, it was all about how good
Timeline is, and how [the mobile version] will basically push people
back to the desktop site,” says Jackson. “In their eyes, that seems
perfectly normal — that people just want to access the desktop site on
their phones. And I just think that way of thinking is probably what’s
going to really hurt them in the long run. Mobile’s not just an add-on.
Mobile’s the core experience.”Jackson views Facebook’s acquisition of Instagram as a stop-gap for a mindset problem.
“At some point, [Zuckerberg's] going to miss a shift that happens, and he’ll [overlook] the Instagram of tomorrow. And two years later, everybody at Facebook is going to realize that shift while [the new app is] eating their lunch.”
Kirkpatrick is more cautious in his approach to the “shiny new app” theory.
“I absolutely think that a cooler system could come along and overshadow [Facebook], and ultimately really hurt them,” he says. “But you have to just recognize that for the time being, the coolest new things that are coming along — Pinterest and even Instagram or Path — typically use Facebook in order to become successful. So they are all relying on Facebook in order to ‘compete’ with it. If Facebook wasn’t there to rely on, would they be able to compete in the same way?”
But Jackson points out that Facebook took similar measures in the early days of its growth.
“I would counter by saying Facebook grew itself through downloading all your Gmail contacts,” he says. “All digital apps piggyback by allowing logins with Facebook and Twitter. But, is that going to be something that Facebook can monetize?”
Perhaps Facebook gives too much away by allowing piggybackers. Perhaps it’s just one more ingenious play for web identity.
“The bottom line thing that matters most to Mark — even more than the success of photos — is the success of Facebook as a platform for identity. As long as Facebook can dominate at that infrastructure role, I think the ability of another ‘cool’ site to overshadow it is very, very minimal,” says Kirkpatrick. “As long as they can be functional, coolness is irrelevant. So, the only risk would be if somebody else developed a better way to create a global Internet identity infrastructure. Right now, there’s no sign of it happening.”
But it could. And it might come from China.
The China Problem
As Facebook nears 1 billion users (one-seventh of the world’s population), it may start running low on new connected adults to sign up. Some already report the network’s U.S. growth is slowing.There is China, of course — arguably the world’s most fertile online market. But getting inside will prove a challenge for Facebook.
“If they were to crack the China problem, it would increase the chances they’d get to two billion [users] in the not-to-distant future,” says Kirkpatrick. “And they will grant the government some control — because that’s just the way it works over there. And the question is, is the amount of control the government would demand more than they are willing to grant, and how negotiable is that? How long will it take?”
Kirkpatrick says China is the next frontier for Facebook, but the approach is critical. A wrong move could spell disaster.
“If they do launch in China and grant the Chinese government a lot of power over the user data, that could lead to a very large backlash in other countries, especially in the United States,” he explains. “If Facebook lets the Chinese government access and delete [user] data, American privacy and civil liberties [groups] are going to say, ‘Well, how do we know you’re not doing it for the CIA? How can you have double standards?’ That could be…very, very damaging to them.”
“A better global identity infrastructure would be the biggest threat to Facebook. It could emerge from China.”
Kirkpatrick sees Facebook and China in a bit of a standoff.
Zuckerberg wants to break in, but as Facebook grows, the Chinese
government will realize it needs a slice of this new Internet
infrastructure to stay competitive.“You won’t really be able to function in the global economy if you’re not integrated into Facebook,” Kirkpatrick says. “For many parts of the world, that’s already true. For a lot of developing countries, Facebook’s presence is the most vital thing on the Internet, and it’s having a huge economic impact.”
So, who will make the first move?
“There’s a chance [Zuckerberg would] launch a separate service in China, just to see what happens,” suggests Kirkpatrick. This could shield Facebook proper from the blowback of cooperating with the Chinese government, while giving the platform a foothold in the new market.
When this could happen is anybody’s guess, but the clock is ticking. While Facebook plans its attack, there are large Chinese Internet and telecom companies waiting in the wings. And it’s not about launching a competitive social network — China has plenty of those.
“A better global identity infrastructure would be the biggest threat to Facebook,” says Kirkpatrick. “It could emerge from China. Tencent is probably the third-largest Internet company after Facebook and Google, so why shouldn’t Tencent start in China and then say, ‘Hey, we’ve got investments in India and Vietnam and Russia — let’s extend this. And then let’s go to Latin America and Africa.’ ”
Tencent Holdings dominates the social networking space in China. Its subsidiaries include the popular instant messaging client QQ, a microblogging network similar to Twitter, a web browser and a number of ecommerce and online gaming portals.
“Once Facebook goes into China, its biggest competitor is going to be Tencent, which is extremely close to the Chinese government,” says Kirkpatrick. Essentially, it’s not a level playing field.
The road to China will be rocky at best, crippling at worst. But as a platform with global ambitions, Facebook must take it.
Kill Your Own Company Before Someone Kills You
To a degree, perhaps all companies are doomed to generational failure — a failure to stay innovative as leadership passes from one team to the next. Is it even possible to build a 100-year brand in tech the way Ford, Macy’s or Western Union held onto their markets?
“It’s almost like you have to kill your own company with every new generation that comes along…before somebody else kills you,” says Jackson. “And I do think it’s possible. Apple is probably the best example in technology of a company that’s come up with a vision of where the world is heading, and creates stuff from scratch that nobody knew they wanted until they saw it and felt it and touched it.”
Does Facebook have what it takes to reinvent itself at that critical moment? Has that moment already passed? Experts disagree. But the threats to Facebook from within are the same for all companies — perhaps even accelerated by the speed of the tech industry.
“Hubris is a part of it. Arrogance is a part of it,” says Jackson. “Having a bunch of yes-men and yes-women around you telling you how smart you are and how great your ideas are, even when they suck — that’s definitely all part of it. And so, you just have to be really honest with yourself, you have to be really attuned to the changes that are going on in the competitive environment. And you have to be hyper-paranoid.”
Article courtesy of Mashable.
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