Facebook’s Collateral Damage

Photo: KP 45  Credit: Ryan Aréstegui
Photo: KP 45 Credit: Ryan Aréstegui

In the Bible there is a story of Thomas, one of Jesus’ apostles who when told that Jesus was living after being executed didn’t believe.   He is purported to have said:  “Unless I see the nail marks in his hands and put my finger where the nails were, and put my hand into his side, I will not believe.”  The Facebook IPO may have just made tech investors into “Doubting Thomases.”

The first day of Facebook’s IPO saw Morgan Stanley propping up the Facebook share price to close near it’s offered price of $38 per share.  Tech stocks Zynga and LinkedIn saw a decrease in their price (since recovered) which may have foreshadowed the fact that more than Facebook’s fate was tied to its stock.  On day three Facebook (no longer being propped by its underwriters) is precipitously declining towards $30 a share.

The social network modus operandi has always been to build a product that people will fawn to and monetize it later.  The problem that Facebook presents is that they followed the recipe better than anyone has ever done it.  They have attracted audience exceptionally well, kept them on the site an unprecedented amount of time, yet they still cannot adequately monetize.  This scared away institutional investors who would would have stabilized the share price, leaving a volatile mix of short-term investors invested in a business that cannot deliver in the short-term.  Expect the volatility to continue.

The challenge that future social networks and tech companies will face is that the presence of a huge audience will no longer lead to the presumption of revenue from that audience.  To attract institutional investors companies will have to play Jerry McGuire and show them the money, or risk the same sort of volatility that Facebook is saddled with for the foreseeable future.

This may not be a bad thing for users.  Facebook has cut off the spigot to brand pages as well as severely penalized businesses using third-party apps to interact on the platform.  They’ve changed the advertising look and are experimenting with a freemium model for users to pay for better exposure.  Add to that the (fairly) recent Timeline migration and from a user perspective Facebook is in flux.  Users find Facebook unpredictable and this is a dangerous peril for them to be in.  They need to change AGAIN to make more money, yet the mass-market would prefer a stable user-experience.

Take the example of New Coke.  Back in the 80s when Coke changed their formulation (making it better tasting in blind taste tests) people went nuts.  Even though the new drink tasted better people preferred what they were accustomed to and relented until Coke returned the original formula to the market.  If an iconic brand like Coke is vulnerable to populist sentiment, it seems Facebook would be as well.

Facebook is in hyper-flux.   In an article about the Seattle Facebook office, a programmer that came from Microsoft beamed that he’d never worked anywhere that he would publish code every week: “If you want to make a change, it will never take you more than a week to get it up.”  It’s quite likely that what excites him about his job users find unsettling.   Multiply weekly changes times hundreds of developers and you can see how Facebook has the means and moxy to be quite disorienting.

Point being, Facebook’s culture doesn’t seem aligned with the stability needed for a mass-consumption product.  The wholesale changes that are going to be necessary to monetize the site to sate short-term investors are likely going to be quite shocking to its user base.  Whatever the fallout is, the next big thing will be better vetted and will prove their mettle before soliciting money from the doubting Thomases.  And if that next big thing is “New Facebook” they need to be quite delicate not to disenchant their users.

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Jim Dougherty

Jim Dougherty

Writer and chief of miscellany at leaderswest.com
I'm the guy that wrote the article you just read. Sorry for the typos.