For years, the conventional wisdom on Facebook has gone something like this: the social network is an unstoppable juggernaut. It commands more and more of our attention and, ultimately, our ad dollars. Mark Zuckerberg is an unimpeachable genius. His product is too popular to ever be replaced.
But there's something wrong with that picture — and it's not just that anything labeled "conventional wisdom" is almost certain to be wrong in the long term. It's that Mark Zuckerberg himself would likely disagree vehemently with all of it.
Everything we've heard about Zuckerberg's behavior inside Facebook says he lives in constant fear of catastrophic and irreversible decline. And with good reason. He is well versed in Silicon Valley lore — which insists, in the words of Andy Grove's famous book, that only the paranoid survive. Things change fast around here; today's Apple could be tomorrow's Yahoo, and vice versa.
Remember, this is the CEO who made a very sudden, very jumpy $1 billion purchase of Instagram — which may have been about to sell itself to Twitter — without consulting his board. This is the company that made an exhaustive list of 35 things that could kill it in its S-1 filing with the SEC. More to the point, it went back and amended that filing several times to make the picture it painted even bleaker.
One of Facebook's biggest problems is mobile: it hasn't figured out how to make money from its smartphone-based users, so the more of us that check Facebook from our phones, the worse for Facebook's average revenue per user (or ARPU, a very important financial metric for consumer companies).
Guess what, the S-1 amendments said. More people are using our mobile apps than we thought. And our revenue is going down.
But that doesn't matter, right? Users love using Facebook. Advertisers are dazzled by its possibilities. And the coming IPO frenzy will erase all doubts and set the company on its way, just as it did with Google.
That's what I thought — until about a week ago. But a number of factors have made me less than certain on all three counts. Let's take them one by one:
Users love Facebook. Or more accurately, they did — until Timeline came along. As poll after poll has shown, Timeline is one of the least popular features Facebook has ever rolled out. The most recent study I could find, conducted in late March by online security firm Webroot, found that an astonishing 88% of users are "concerned" about the privacy implications of all the data that Timeline sucks in.
Facebook announced Monday that the last few Timeline holdouts would be automatically switched over as of May 21. That's it — no more old profiles. Timeline is mandatory. Will users learn to love the new layout? Or will they conclude that Facebook is getting too damn complicated — and spend their valuable time elsewhere?
Ironically, the one place they can go for a Timeline-free Facebook experience: Facebook's mobile apps. Down you go, ARPU.
Advertisers are dazzled by its possibilities. Make that some advertisers. The ad world was buzzing Tuesday about the news that General Motors, one of the three biggest advertisers in the U.S., is pulling all of its Facebook ads, citing a lack of effectiveness.
Granted, GM's $10 million spend was a drop in the bucket of its $1.8 billion U.S. ad budget, not to mention Facebook's $4 billion revenues. GM's rivals, Ford and Chrysler, plan to stick around. But it does raise a troubling point: the effectiveness of Facebook ads is still unproven.
The social network is a place we go to hang out with friends, and ads in that context can often seem a little creepy and intrusive, no matter the high standards Facebook holds them to. Retailers are already shutting Facebook stores. And there are plenty of reasons to doubt whether Facebook ads can ever be as effective as Google's AdSense — which has the benefit of being in a better context, ie. when we're actually looking for stuff.
So could GM be ahead of the curve, rather than a stodgy old outlier? Either way, it's about the last question Zuckerberg would want you to be debating in the last days before his big IPO.
The IPO will erase all doubts, just as it did with Google. Ever since Facebook first revealed its surprisingly low IPO share price of $28 to $35, I felt the company was, to use sales parlance, pumping the buying temperature. If the price jumps on day one, that's all you'll read about in the headlines.
Indeed, when Facebook recently bumped its initial share price, it seemed of a piece with that strategy — slowly raise the price of jumping in, and everyone will want on board before too long.
But then came the report that the IPO roadshow was less successful than Facebook had hoped. Zuckerberg's choice of clothing for the big investment bank meetings became the story — an admirable riposte to Wall Street, yes, but not likely to win you many friends among slicked-back fund managers.
And IPOs are a risky business. For every Google, there is a Groupon. The Chicago-based daily deals site was all the rage before it went public, even turning down a generous buyout offer from Google. Then, a few months after IPO, its shares plummeted to below the initial asking price. The daily deals space? Not so hot right now.
That's the problem with pre-IPO hype. You have to deliver on it, and fast. If Facebook ends up worth less than the $100 billion valuation we've all been discussing for months — heck, even if it doesn't jump much beyond that — the whispering campaign will start. The cracks in its facade — Timeline, ad engagement, the fact that nearly all of its growth is coming from outside the U.S. — will become more obvious. And Zuckerberg's worst fears may well be realized.
What's your take on Facebook's status? Let us know in the comments.
"We fail to introduce new and improved products or if we introduce new products or services that are not favorably received."
Image courtesy of Flickr, Mr. T in DC
"Decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook."
"Loss of advertising market share to our competitors."
Image courtesy of iStockphoto, travelif
"We fail to introduce new and improved products or if we introduce new products or services that are not favorably received."
"There are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and sharing, safety, security, or other factors."
Image courtesy of iStockphoto, domin_domin
"We are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful, and relevant to them."
"Adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry."
Image courtesy of iStockphoto, drxy
"The degree to which users opt out of social ads or otherwise limit the potential audience of commercial content."
Image courtesy of iStockphoto, freie-kreation
"We fail to introduce new and improved products or if we introduce new products or services that are not favorably received."
Image courtesy of Flickr, Mr. T in DC
"We are unable to successfully balance our efforts to provide a compelling user experience with the decisions we make with
respect to the frequency, prominence, and size of ads and other commercial content that we display."
"There are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and
sharing, safety, security, or other factors."
"There are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including
settlements or consent decrees."
"Decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook."
"Loss of advertising market share to our competitors."
Image courtesy of iStockphoto, travelif
"We fail to introduce new and improved products or if we introduce new products or services that are not favorably received."
"There are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and sharing, safety, security, or other factors."
Image courtesy of iStockphoto, domin_domin
"We are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful, and relevant to them."
"Adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry."
Image courtesy of iStockphoto, drxy
"The degree to which users opt out of social ads or otherwise limit the potential audience of commercial content."
Image courtesy of iStockphoto, freie-kreation
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