The end of Facebook

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The rumors of it’s death have been greatly exaggerated. But recent annoying, pleading, e-mails from friendsreunited.com for me to revisit (get over it – I moved on years ago! It’s not me it’s you) have reminded me that people are fickle things and that fads move on. One day in the future the only ones updating Facebook will be politicians and Companies who fail to realise it’s just not cool any more. In my opinion this will happen sooner than anyone realises and when it happens it will happen in a matter of months.

Remember that Facebook is only 8 years only and most people joined in the last 5 years. Also name any websites you still use which are 10 years or older? Hotmail (and only cause I’m too lazy to change)? Amazon (just, but probably been ordering from them for less than 10 years)? Google (again only just)? Then again, is the fact we only have these few examples indicative of the difficulty of keeping a site popular beyond that, or simple because the web is relatively young and 10 years isn’t actually that long ago? Either way it shows that, despite it’s massive popularity now, Facebook’s future is far from guaranteed.

So what will it take for us to all unlike Facebook? Or has it already happened? There are plenty of articles out there saying the golden time of Facebook has already passed. Many reasons are given: The IPO was a disaster, all the owners and early investors are now allowed to cash out and lots of them are dumping the stock, ultimately it’s not profitable and advertising is annoying it’s user base, privacy concerns mean more and more people are choosing to cancel their accounts, and finally the cool people have moved on to Twitter. Let’s look at some of these in detail.

The IPO was a disaster”

To remind you all: Facebook launched at $38 a share in May 2012 and after the briefest of rises, crashed over the next few months to lows of $17.55 and even having recovered slightly (at the time of writing is $27) is still well below issuance price. This is ignoring all the other issues (NASDAQ technology issues on launch morning, releasing price sensitive to certain investors only just before launch). Overall it’s a pretty damning indictment of a massively over-hyped company and surely marks the beginning of the end of the company? Well I’m not so sure it’s too much of an issue for Facebook itself. NASDAQ and Morgan Stanley (the primary issuer and ultimately the firm responsible for smoothly bringing the company public) don’t come out of it well but is Facebook itself hurt much by this? After all with an IPO the company raises the money and, while it looks good, massively undervalued stocks are initially worse for the company as they represent a missed opportunity. Yes it doesn’t look the best that the price was so way off especially if you as an investor lost half your investment in the first few months but let’s be honest with ourselves here. The stock WAS massively over-hyped. The IPO valuation priced the stock at 100 times annual profits – a ridiculous multiple to be honest and investors should have realised this. In my opinion it’s still over valued but that’s what the stock market gives you – the opportunity to invest (or perhaps more accurately: gamble?) in the hope your investment pays off. The lasting issue of the IPO will be one of share price. On the one hand initial investors will not be happy with the loses already taken and it could be argued that that puts pressure on the company to become more profitable to make this money back. However I don’t think that’s a big concern – they’ve taken their well deserved medicine and always knew (or at least should have known) it was over-hyped and so a longer term investment. Unless it keeps falling, the initial slide represents an adjustment rather than a damning indictment. The other side is that Facebook actually has a bit of respite on it’s valuation with the price drop. Yes it’s still massively overvalued at present but people have woken up to the financial side of Facebook and are being a bit more sensible on expectations.

“Employees and Early Investors Cashing out”

It’s true that lots of employees are cashing in stocks now that holding restrictions are passed but 1) who can blame them! and 2) the original team who invented it, and are driving the future of the company (Zuckerberg in particular) are still heavily invested and seem to have no intention of quitting the firm. When you see people cashing in and losing interest in the firm and moving on to other things – that’s when to worry. Also interestingly enough the share price did not plummet when all the selling happened and has recently been rising suggesting market confidence in the firm. Yes it’s now a business and has business pressures it didn’t have before (see above and below sections) but the fact the early people are “cashing in” is not too big a concern for me.

“Ultimately it’s not profitable and advertising is annoying it’s user base”

Can Facebook pay for itself, never mind make a profit? Particularly with the much mentioned move to mobile and limited advertising potential there. Facebook has recently upped the ante on revenue generating side, resulting in irritating “sponsored links” appearing frequently – will this drive revenue up or cause people to get fed up and move on? Time will tell and I’m sure there will be more changes on this. Certainly mobile is a challenge but also an interesting one with upsides too. People check Facebook much more frequently with mobile (on the bus, in the office behind corporate firewalls which used to block access form the PC, even on the loo) and also add content (particularly photos) more frequently. This is good for the company and if they can come up with a sustainable profit model that it’s user base accepts then mobile could be the saviour of Facebook and not the death knell everyone says it is. And that’s without looking at other ways of raising revenue. The end of the agreement with Zynga is interesting and may point to alternative revenue streams being attempted (Facebook doing their own gaming platform). Controversially I also think Facebook should offer a charged ad-free version. Critically they must keep a free option available for those that don’t want to pay but for those willing to pay a small fee instead of ads the option should be there. This makes money and avoids ads for those that want to. A win, win in my booked providing they can make it very clear that free Facebook will not be removed for those that are willing to put up with the ads.

“Privacy concerns mean more and more people are choosing to cancel their accounts”

Privacy is shaping up to be a big issues for the 21st century (I’m reminded of this West Wing Storyline) and despite Facebook’s feelings on this and attempts to default all sharing to “on” this is a major concern for Facebook. The weird thing is it needn’t be. Facebook has no need to force sharing on it’s users. It’s users are on there because they want to share! I really don’t understand why Facebook doesn’t turn things off by default and work on persuading you to use the sharing options and thus avoid all the scare stories that inevitably come with each “privacy abuse” they do. It’s not going to hinder the growth of the site, and it’s not going to remove it’s own access to the data if it decides to use targeted ads or whatever (again Facebook please persuade users that targeted ads are necessary, are probably more helpful to you than non-targetted ads and that is done without sharing details outside of Facebook – which I hope it is). Some people are moving off Facebook because of this and frequently there are news stories about someone who got fired/not hired for something about them on Facebook. My view on that is that these are extreme cases and while you do need to be cautious what you and you friends publish on the web, you could also never leave the house in case you get hit by a bus. Again I go back to my argument that most Facebook users like sharing and so with some better PR and more sensible choices Facebook should be able to avoid this issue entirely. The world is becoming a more open place and I think in future our grandchildren will wonder what we had to hide with all these privacy concerns – much like our grandparents wonder why we need to share every little item that pops into our head (“As if every thought that tumbles through your head was so clever it would be a crime for it not to be shared.”)

“The cool people have moved on to Twitter”

This to me is the big cause for concern for Facebook’s future. Facebook will fail, like the Friends Reunited, Friendster, MySpace and Bebo of yesterday not because of anything they do, but because some new fad comes along. There is already evidence people are moving to Twitter and certainly my friends post more there. It may not be Twitter that brings it down – there are warning signs they are adding to their own demise (or securing their own future depending how you read it) by locking out other networks twitter access and even limiting access by third-party Twitter apps. Also after two failed attempts I have serious doubts Google will come up with a viable social alternative though I would never rule them out of anything with the resources (both financial and brains) that they have. But whoever it is, eventually some new thing will come along and more and more of your friends will move to that. When this happens the limits of a social network without any socialising or network will become apparent and Facebook will enter a rapid free fall. This may well happen after it becomes profitable enough to be self-sustaining meaning it will continue to hang around… but you won’t care as you won’t be logging on so it will be effectively dead. There is little Facebook can do about this. They need to keep innovating to keep it fresh and give reason to ensure people visit Facebook and not some other website, but the downside of this is that people dislike change – witness the uproar about Timeline or any other time Facebook changes something. Facebook’s key differentiating point from something like Twitter at the moment is that you can get a complete profile of someone – particular for photos. By that I mean someone can look to Facebook and see a collection of photos of someone and can get a sense of who someone is and what they are up to. Twitter is more a random collection of thoughts, trends and jokes and it’s rare anyone looks at individual historical tweets as the moment has passed and most people tweet so often. So both have their places, though it’s obvious Facebook becomes less interesting as less people use it.

Ultimately, it’s much more likely that Facebook is a fad and it will die out, than the fact it will permanently become part of our culture and still be used in 10, 50 or even 100 years. Some other kid in a dorm room or some clever corporation is going to come up with something new to beat Facebook and it will become another foot note in Internet history. Either that or I’m completely wrong and Facebook will quickly move from 1 billion users to the other 6 billion users that haven’t signed up yet, and I’ll be using my Facebook account instead of my passport at border control in the near future…

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One thought on “The end of Facebook

  1. Pingback: Should Facebook start charging? | randomwitterings

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