Facebook’s rocks and hard places

7 Comments

Get the short URL

Facebook can’t make money like LinkedIn does, and can’t invade your stream like Twitter does. This is a problem, and it puts the company between the rock of charging for use and the hard place of relevant mobile advertising.

As a pretty damning (and must-read) Forbes piece points out, Linkedin can make money from the people who need its tools—such as recruiters, who pay thousands of dollars for access to networks of candidates. LinkedIn makes $1.30 for every hour someone uses the site. Facebook makes only 6.2 cents. Worse:

… Facebook, which derives 85% of its revenue from advertising, makes money only when you’re on Facebook. Once you sign up for LinkedIn, the social network monetizes your information, not your time. Mark Zuckerberg can crow about how his users spend, on average, 6.35 hours per month on Facebook versus 18 minutes for LinkedIn. But Facebook users may click on only one of every 2,000 ads. Ask yourself which model seems more sustainable.

These dynamics will get further magnified as the Web goes mobile. It’s hard to deliver ads to tablets and smartphones, which causes no small anxiety at companies like Facebook and Google. At LinkedIn, where 22% of visits now come from mobile devices—versus 8% a year earlier—this surge just means more of the kind of interactions and data that it can monetize.

By contrast, another must-read article shows that Twitter’s ad revenues are starting to shine because the company can inject relevant tweets into users’ minds. Given the asymmetric follow structure of Twitter, users have an expectation of “outsiders” in their streams. The WSJ article mentions several satisfied advertisers, including P.F. Chang’s:

The Scottsdale, Ariz.-based restaurant chain this winter spent $25,000 to pitch a Lunar New Year promotion to people on Twitter. P.F. Chang’s arranged to push posts promoting dining rewards to Twitter users, including those searching for terms such as “Chinese New Year,” on their mobile phones or their personal computers.

In the first four days of the campaign, P.F. Chang’s said roughly 1 million people clicked, recirculated or otherwise interacted with the Twitter ad. Of those people, roughly 70% did so from mobile devices rather than computers.

Google has its share of issues, too, but it seems to be making the same kind of hard decisions that Twitter made once it resolved to make money from its service. There was huge outrage about sponsored tweets when Twitter first launched them; but today, users accept them as a cost of using a free platform. Google’s undergoing a similar change.

It had already excised dead wood like Wave and Buzz, and much of Labs. Recently, Google killed iGoogle (basically personal homepages, which plenty of people used, but which weren’t really interactive.) If they can convince people to build a G+ homepage with similar features instead, they’ll turn all those Google landing pages into G+ landing pages. And if they can then use their understanding of users, data, and content to make that landing page interesting when you see it, they’ve captured your attention.

Google’s making other efforts to consolidate, too. They’re also promoting across products—telling Google Calendar users that they can create a G+ event and it will get things like hangouts and the ability to share things, and tying G+ events into its staple calendar product.

It’s as though Google is finally learning how to put all their wood behind a few arrows. My wife was lamenting the death of her iGoogle page—which she’s been using for years to corral all the content and sites she uses into one page—last night. But while Google’s new stance might create some outcry, it’s the right thing to do. Don’t get me wrong: I still think Google should stop trying to be social and be the company we expect it to be. But Google should me commended for making smart, hard decisions and bringing focus to its standout successes.

Facebook is stuck in an awkward place compared to LinkedIn, Twitter. and even Google.

  • It’s not a “vertical” social network like LinkedIn
  • It’s not an “open” social network like Twitter
  • It’s not a default part of using the Web like Google is

Remember that Facebook was designed as a web application (before the iPhone existed!) Mobile was an afterthought. At its core, Facebook is also built around the idea of a network of friends, which means some people (and their messages) are foreign to that network. Our “immune system” reacts when someone promotes something to us. Our first reaction is that their computer has a virus and it’s spamming their social graph—not that they might be genuinely recommending something.

This is Facebook’s rock and hard place. It can’t easily sell the data without consumer outrage (whereas LinkedIn is about employment anyway) and  it can’t inject content into your mobile stream without being disingenuous (because doing so breaks the illusion of “me and my friends” privacy.)

Facebook looks more and more like a platform (a modern AOL) that tries to keep people inside it, making money off the in-system credit taxes. But unlike AOL, which made its money from dial-up access, Facebook has no guaranteed revenue stream to draw from as the world goes mobile. If it can make Facebook Connect the single-sign-on of the Internet, it has a chance, which may be why it’s favoring acquisitions that use that universal login tool  well.

There’s a third must-read article, that gets to the core of some of these challenges. It’s summed up in a simple sentence: Kids don’t want to be friends with their parents.

For a teenager trying to establish his or her identity and some level of personal independence and some level of privacy, Facebook simply doesn’t deliver on its original promise of exclusivity in today’s day and age.

Facebook’s strategy seems to be to launch a variety of standalone apps that feel exclusive, and separate, but still plug into the overall system. Messenger and Instagram are good examples; but there’s also Karma, Tagtile, and other applications that can become new revenue sources.

A social network that’s really a quilt of tools reminds me of nothing more than the Compuserve and AOL screens of old.

Such a strategy represents another peril for the company: as it acquires one developer that’s built something atop its platform, it alienates others. This is a delicate balance: add features that users “expect” from the service, but still retain a vibrant developer community. Microsoft struggled with this for decades, eventually adding things like disk compression, painting tools, and security features that others had sold. Now Facebook has to deal with it, too.

The smartest thing Facebook has done is build a vast war chest and an unbeatable amount of user engagement so that it can tackle these challenges. But the significance of them should not be understated.