3 times this month I was called upon to draw my attention to (relatively) new players of the e-economy: foursquare, google and now facebook.
3 times I have followed the same research pattern: read wikipedia for the company's history, browse their websites and generic news sites for information on their products and sources of revenues, get inspiration from specialized blogs and other e-media sources for clever insights about their business and their future.
3 times I looked at what I got and ended up with the similar conclusions: the future of these companies, and in particular of Facebook, is directly linked with the way they handle and adapt to 3 key issues. Data privacy, anticipate and/or prevent the "online advertising bust" and stay in tune with recent trends affecting their businesses.
Data privacy
I do not have an accurate figure, but if I boldly stated that 80% of the news articles of the last six months on Facebook addressed the issue of data privacy I could probably get away with it (the remaining would be 15% about acquisitions and IPO and 5% demonising founder and CEO Mark Zuckerberg).
I feel most of the excitement is both biased and dated. Biased because for decades banks, insurance companies and governments have stored confidential and sensitive information prone to hacking and misuse. Dated because even if Facebook may concentrate more personal information than your bank (which is debatable) most users simply do not care: generation Y clearly has its own view on what privacy means and social network websites like facebook are designed for them and not for their critics.
Having said this, Facebook's strength depends on their user base and the traffic they generate. To step out of line and loose the confidence of their users is very risky because competition is just one click away.
Online advertising bust
This is controvertial: how do I dare putting the adjective "bust" close to "online advertising", the new Holy Grail of PR, the Mecca of product awareness, the Nirvana of relevance and meritocracy, a market that went from $4,6Bn in 1999 to $22,6Bn in 2009 in the US alone!
Well, because of one simple reason: online advertising is easy to avoid, block, opt out. Don't believe me? Just google it and, with an appropriate plug in you can avoid those annoying and intruding pop ups that come up pretty much every site you browse to.
As an MBA student of IE at had the privilege of attending a class with the country manager of Google Spain in which he stated that advertising blockers are not a major concern because Google sees advertising as a "service" to the users and those who opt out from it would not provide any revenues anyway.
This is a good (and brave!) point but I wonder how many users consciously consider online ads a "valuable service" vs those who would rather block them if they knew how to. As users become more tech savvy it is not unreasonable to think they will be activating advertising blocks most of the time they surf the web, consequently reducing the number of times they are exposed to ads and the number of times they click on them (both major sources of online advertising revenue).
If this hypothesis of the behaviour of web users is correct, online advertising will grow up as more users get connected, will start decreasing when they learn to block advertising until it reaches a stable (lower) equilibrium that corresponds to the users that click on ads only when they choose to be exposed to them.
In fact, I wonder if last years's small dip in online advertisement in the US is a consequence of the financial crisis or an indicator that the US market reached a mature point and has started "the search for the new equilibrium".
- Online advertising revenues: USA -
source: "IAB Internet AdvertisingRevenue Report 2009", published April 2010 and available online here This graph is on page 5.
Stay in tune with trends
Young innovation driven internet companies are used to operate in a very dynamic environment. Facebook is one of these that, like it many of its kind, started off as a cute, unpretentious idea to fulfill a niche (create a facebook of Harvard students), operated for years on venture capital money until it finally found its gold pot in online advertising.
In this process, the key factor of success was adaptability. Facebook's capacity to adapt resulted in the creation of a superior product (usability is considered one of the reasons that made Facebook explode whereas mySpace faded) and of eventually finding its business model that took FB from negative CF in 2009 to $1Bn in revenues in 2010.
Going forward this characteristic will be very important to meet two serious challenges: the increase in quantity and variety of internet devices and platforms (ex.: tablet computers and TVs, Apple vs Android) and the global trend to "go mobile" (where Foursquare's concept of "social networking meets google latitudes" may be an embryo of what lies ahead).
So what's next for FB?
I do not dare anticipating what Facebook will look like in two years time. It would be arrogant and possibly stupid to do predictions about a company that operates in a very dynamic environment, where competition is 1 click away (ok, maybe not 1 but not more than a few...) and that does not care about money.
But its future is likely to be shaped by the pulling and shoving of the 3 forces I described. And it will undoubtedly be interesting!
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