Is Facebook Too Big to Succeed?

By Ben Bajarin for Edgelings.com

Does Facebook have a future?

The obvious answer is:  of course.   However, the real question is whether or not Facebook’s future is as bright as people appear to believe it is – and when a supernova company like Facebook cools, things can go very bad very quickly.

So, can four-year-old Facebook, with its 125 million unique monthly visitors, stay on top of the social networking, Web 2.0, world for the foreseeable future?    That answer is not so obvious.    

For one thing, it’s hard to look at Facebook and not see a lot of the early Napster.    In both cases, the industry got excited about a big idea that came from college kids who had developed a technology to meet their own needs – in this case Mark Zuckerberg (some would say Aaron Greenspan), Dustin Moskowitz and Chris Hughes.   

Young CEO’s have a fresh passion for technology, innovation and business.   Investors get very excited about this and look for any way they can to capitalize on this youthful zeal.    What young CEO’s often gain with fresh passion they lose in business and market inexperience.    Investors can often offset this lack of experience by adding experienced management teams and investors to help.  The good news is that is what has happened over the past year with Facebook (as it never really did with Napster)

However, an even bigger challenge (one, both Napster and Facebook also have in common) is the volatility and unpredictability of relatively new markets.    Social networking is only about five years old.   And when you are dealing with a relatively new market opportunity, odd monetization challenges sometimes arise – and for which there is no established road map to success.  And if you make the wrong choice you can quickly find yourself facing disaster.

For example, it turns out that for social networks there is a very delicate balance to making money, and not driving away customers.   A year ago, it was MySpace, Facebook’s largest competitor, that enjoyed the lion’s share of the Web 2.0 world’s attention.    But MySpace, trying to make money, made the mistake of becoming too advertising-centric and ultimately sold away a lot of the social experience.    You now hear kids say they are ‘over’ MySpace.   

Now it’s Facebook’s turn to monetize itself.  And so far, the results don’t induce optimism:  a system for notifying users of their fellow Facebookers’ purchases, called Beacon, was both an image disaster and a nearly-criminal invasion of privacy.  It almost pulled down Facebook before the company hurriedly pulled it down–promising to come back with something similar.  Facebook knows that it must convert its legions of users into revenues – but at the same time it does not know how to achieve that objective.  That’s not the mark of a company with a guaranteed bright future.

When you look at Facebook’s model it is apparent that the company does a great job of creating a “one to many” model – meaning, that when I join I instantly become part of a larger network or community.   Of course, I can still have “friends” who, in the process, make my network a little smaller and more intimate — but ultimately everyone in the network is, or has the opportunity to be, connected.    

As appealing as this sounds in theory, ultimately it could be a flawed model in practice.    When you look at people’s offline social behavior they only want to be connected to the people they want to be connected to.   And when they are interested in meeting others, it is typically based around like-minded interests and passions.     By comparison, while Facebook does a great job connecting a large group of people but it doesn’t do a great job connecting smaller groups of people.   Tellingly, there are some new Web 2.0 companies that do this kind of thing well, notably Ning, founded by Netscape’s Marc Andreessen.   

Ning enables individuals or groups to create their own social networks.    A group of friends who like surfing can create their own open or closed surfing social network.    Poodle lovers can create their own poodle social networks.     Where this gets more interesting is from a monetization standpoint:  these niche social networks are exactly what advertisers are looking for because they can narrow-cast their message to a very targeted group of people.  

The Ning-type scenario, which blends the Google model with the Facebook model, is a very compelling one.    And Ning isn’t alone:  other notable examples include Dogster.com and Momspace.com.    Both are niche social networks that have developed a social experience around specific interests.    In the years to come we are likely to see a huge wave of new niche social networks start catering to every type of person and their unique interests and passions.    

One obvious concern about these vertical niche networks is whether or not they can reach the critical mass needed to monetize.   But that process has already begun in general as advertisers, desperate to get to young consumers, are porting over traditional magazine and television metrics to determine what sites are worthy of advertising dollars.   That impetus can only help the Web 2.0 world because today, though both viewership and readership ared won, TV and magazines still get the lion’s share of ad dollars.   That can’t go on much longer – not when YouTube enjoys more viewers per day than American Idol gets in a month. 

So the question now is:  when all of that ad money starts pouring into on-line social networks, who is going to scoop it up?

Six months ago, the answer might well have been Facebook.  But despite (and perhaps because of) its immense size, there is no guarantee now that its one-to-many model is the right one.  And even if Facebook can implement a new “one-to-some” model it may already be too late.  There are a lot of hot new vertical niche networks out there that know the game far better than Facebook does.  And even if Facebook does play a smart game of catch-up and adds this feature to its current business model, the company will run smack into another reality:  consumers like simplicity – and when you try to be all things to all people, you lose that simplicity.  As the MySpace story underscores, social networkers, though they number in the hundreds of millions, are a very fickle crowd.  There is little holding them to any site – and they can walk away in an instant if they are unhappy or uncomfortable.

Does that mean Facebook has no future?  It would be foolish to make such a prediction with any certainty when it is currently the hottest company in the land.  But in high tech, nothing last for very long.   Often the biggest risk great tech companies face is the changed consumer expectations they themselves created.  MySpace pioneered the market, but failed to cope with the changed expectations of its users – and reluctantly handed the torch to Facebook.  Now, if Facebook too can’t adapt to this ever-changing market there is a whole host of ambitious young competitors out there just waiting to grab the wheel.

Ben Bajarin is Director of the Consumer Technology Practice for Creative Strategies, Inc. in Silicon Valley.