Facebook COO Sheryl Sandberg says FB don’t compete with Google for advertising dollars. This is utter nonsense. The issue is simple economics. They’re both offering you ads and your time is a limited resource. The more time you spend on FB, the more of your data it gathers (rather than Google) and the more ad revenue is being diverted away from Google. There’s a clear correlation between network value and time spent. Planning a paper on this topic in early 2012 but the 100Bn dollar (or less) question is what FB’s IPO value is.
The more content you add to facebook instead of the “open” web, the more value you’re diverting value away from the web, in turn diminishing the value of a tool that generates wonga based on searching the open web for stuff. FB is huge, pervasive and it’s effectively creating a social overlay on the web, transferring value from Google to FB in the process. That’s why Google hope that G+ gains significant traction. Social was Google’s lacuna & they can’t afford to be left behind.
If you doubt the value shift that I’ve suggested, ask yourself the following questions:
- If another search engine came along that’s better than Google, would you move? Practically, it’s difficult to see how any company could improve on Google’s brilliant search engineering (in the short term) BUT we said that about altavista many years ago. Altavista’s tombstone should say “here lies customer loyalty to search engines, learn from our mistakes”
- If another social network came along that had desirable features Facebook didn’t, would you move? (G+ suggests most wouldn’t or, if they did, it would be half hearted).
- Do you feel product loyalty towards FB?
- Do you feel you have invested your time in FB? How much is that worth?
- Are you more likely to “friend” a product on FB than click on a product ad on Google?
- Do you comment on companies Press Releases via their FB pages? You’re carrying on a conversation with them & other customers, right?
- Do you find yourself neglecting your blogging because you a) don’t have the time and/or b) everyone’s on FB anyway?
- When you do blog, how do people find out about it? Facebook?
Facebook is benefiting from Value Inertia. The value of a network is based on the number of people involved and the degree of connectivity between them. Facebook’s management have a genius strategy for MAXIMISING that value, increasing connectedness and making it ubiquitous. Forget the engineering, that’s their Big Idea. The more time we devote to it, the more value it gains and the more difficult it is for other businesses to compete and, ironically, for us to decide to abandon it for another service. This time is worth more than any patent horde as we each have only about 80 yrs of it, currently. We can’t get that time back, damn you entropy! 🙂
Facebook is “free” in the sense you don’t pay money directly to use it. There’s something more precious than money but we’re so cash obsessed we rarely acknowledge it. Our most precious possession is our time and we spend an increasing amount of time investing ourselves in one company.
And so on to the IPO. From a purely capitalistic viewpoint, it’s rational to buy shares in FB. Why? Because you’re already invested and its value is derived from your participation (forgetting about pesky regulations for privacy that may impede the corporations ability to turn content into revenues). From a socialist perspective it’s odd that a small group of people will make so much money (and I predict it will rise from $100Bn with all the force of self fulfilling prophesy) from the contributions of hundreds of millions of others. However, I’m not sure this is a good argument for nationalising it. While we undoubtedly want regulations on privacy, I’m not sure anybody (sane) wants state control of their social network & that’s a debate about our current hegemonic pseudo-democratic governments. We get enough political spin from other network users besides our social network having an official policy on political matters like the Eurozone for instance.
There are at least 2 possibilities that could undo FB. Perhaps they’re probabilities 😉
- Someone will come up with a more valuable overlay that they can build on top of the ever changing communications intertubes. This will possibly leverage some other communications medium like broadcast TV. Imagine a fruit company buying a twitter bird and the kind of products they might then make 🙂 Seriously though, this is the most likely scenario & undoes every corporation eventually.
- Anti-aging research will hit pay dirt. Then we’ll have to re-revaluate our time and time-invested value we put on product loyalty will be reassessed e.g. I may have invested a few years in FB but I’m living until 300 now so I don’t care about that time so much. Is it worth factoring this into your business model, I doubt it. However, insurance companies are big investors in anti-aging research, as a risk hedge.
Either way, FB is a fascinating social experiment.