Facebook: The Beginning of the End?

I was late to the Facebook world, and I use it reluctantly and haphazardly. (If you’ve found me there, tried to friend me and gotten no response, it’s probably because I keep my network to about 100 friends, relatives, and colleagues. If I don’t know you, I don’t add you.) I can see its uses in keeping people connected, as well as for the new evangelization, but I’ve always been extremely dubious about “free” products because, of course, nothing is free. No company gives away its product, which means that we aren’t Facebook’s customers: we’re what they’re selling.

Zuck is selling widgets, and we’re the widgets. We dutifully turn up each day to exchange cute kitten pictures and post articles and links so he can give his real customers–the advertisers–access to that most precious commodity: our preferences, our time, and our eyeballs. In a world where people gladly walk around wearing giant corporate logos on their clothes (and paying top dollar to do so), I assume most people are fine with that.

I’m not. I don’t like being part of a corporate machine. Right now, I’m okay with the tradeoff I get from Facebook: I get a few features I like, and they get to put advertisements on my screen which I can ignore. (You get a similar deal here at Patheos, but with more Mormons.) If that balance shifts too much, I won’t stick around for long.


Facebook’s recent IPO is still dominating the current news cycle, with financial analysts making all the noise they usually make about whether it’s good or bad, whether it was a success or failure, and What it All Means. I’ve come to the conclusion that “financial analyst” is a modern synonym for “shaman.” They might as well switch to reading entrails for all the actual value they add to any discussion. Go surf through YouTube and you’ll find videos of the best financial minds in the country ballyhooing the dot-com bubble, poo-pooing the idea of a housing bubble, and generally being insanely wrong most of the time. You’d do as well to get your stock tips from Madam Kulagina’s Tarot Card Readings and Hot Wings.

This morning the stories are heavily weighted towards the “FACEBOOK IPO A HUGE FAILURE!” meme, with an occasional contrary soul saying, “FACEBOOK IPO AN AWESOME SUCCESS!” Unless you’re a day-trader, reacting to tiny fluctuations in the market is pointless. It’s not even worth reading the stories.

There is, however, going to be a long-term impact from all this, and in time it will change the social network landscape.

Facebook did not want to go public. They were forced to do so by an old SEC regulation that pushes companies with more than 500 “shareholders of public record” to disclose the same information which public companies are required to disclose. Facebook was intensely well capitalized, even though it did so through some financial monkey business, such as treating a large Goldman Sacks investment as a single “investor”, thus keeping them below the 500 shareholder threshold for a little longer.

The problem with this is that it’s a profoundly un-American way to capitalize a huge company like Facebook. American capitalism has always worked from the idea that ordinary people could buy a piece of a new company at a low price in order to help it start and grow, and then watch their investment increase. Facebook kept Main Street investors out of that loop, leaving only the employees and the big money as investors.

The rules exist so that moneyed oligarchs aren’t allowed to just trade up the value of a company while keeping ordinary people from reaping any profit. And that’s exactly what happened with Facebook. It was priced out of the range of ordinary investors.

The Future?

The point of investing is to increase your investment, but Facebook may well be valued at just about what it’s worth. This why everyone is ready to pounce on all these price fluctuations: they’re desperate to figure out if it’s going up or down. I don’t pretend to know whether it will be a success or a failure, but my long-term prognosis, from a pure tech standpoint, is not particularly rosy. Facebook was where they needed to be in terms of revenue and value. In order to give investors a return, they have to grow at a steady rate. I’ve seen various estimates about just what that rate should be to make an investment worthwhile, but let’s just pick a round number and say it should be in the 20% range.

Unless Facebook finds some new way of monetizing the internet that has thus far eluded everyone else, their revenue will remain wholly dependent on advertising. Those little ads you ignore in the sidebars? Yeah, those are going to get a lot bigger, and they’re going to be popping up in the main timeline. I’m already seeing “sponsored links” in the timeline, and I’m already annoyed by them. Facebook is also about make serious changes to their mobile experience, and by “serious changes” I mean “more ads”. The IPO means nothing to you from a financial standpoint, because most likely you’re not an investor. But the IPO will, over time, change the Facebook experience, and probably not for the better.

Everyone out there is worrying about one thing: is Facebook a fad? Can it fade away like MySpace? Will attempts to monetize it destroy the experience enough that people will go elsewhere? Are people already growing bored with it?

I believe the answer to all those questions is “yes”. I’m already noticing that younger people are using it less than they were a year ago. They’re just not checking it and updating their status that much. I’m not quite sure what could replace it, but there are a number of alternatives percolating in the tech world: Diaspora, Path, Pinterest, Tagged, and, of course, Twitter, LinkedIn, and the ghost-town known as Google+. Microsoft is working on So.cl with all the skills they brought to the Zune, other mobile-driven services already have a serious following, and who knows what enterprising aspie is right now hard at work on a Facebook killer in his dorm room?

In fact, the entire social networking paradigm has been shifting from desktop to mobile, leaving Facebook’s crummy apps running a distant second. Absolutely no one is saying, “Do you know what Facebook mobile needs? More ads!” Yet that is where Facebook has to make changes in order to satisfy investors.

I am not saying that Facebook is going to go bust. I just think we may well be at the high-water mark of Facebook’s success. There isn’t a ton of room for it to grow, and in a public company, lack of growth is frowned upon.

There something else that’s been tickling the back of my brain. One of the unquestioned success stories in tech is Amazon. I’m struck by the idea that a retailer like Amazon is poised to monetize a social network like no other company currently in existence. Perhaps they could forge an alliance with Facebook which could completely change the equation for both companies, but what if they started their own social network. I’m not sure they would, or even could, but if they did, it would exist in the sweet spot between commerce and networking. And by sweet spot, I mean “an utterly terrifying place where a retailer knows everything about you.”

And there’s one final point. Somewhere out in Menlo Park, a bunch of techies just became millionaires. Some of them will cash out and start up their own companies. The money being flushed into Facebook is going to emerge in all sorts of interesting places. It will create new tech, new opportunities, and new jobs. Some of those might even be new social networking companies.

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About Thomas L. McDonald

Thomas L. McDonald writes about technology, theology, history, games, and shiny things. Details of his rather uneventful life as a professional writer and magazine editor can be found in the About tab.

  • Holly in Nebraska

    I don’t wonder if people have gotten bored with Facebook. We keep looking for God all over the place. When we don’t find him, we are dissatisfied and go looking somewhere else. It seems like Facebook will eventually fade. Then again, TV is still with us. We liked it so much, they created more and more channels. Now you can click down the guide and still not find anything worth watching. Patheos, too, is predictable. Perhaps they remain because sometimes we want to avoid God, avoid changing. I finally decided to turn off my computer at 3 pm every day and stop TV watching after dinner, except for rare occasions. I read more and pray more, but even those can be escapes from God. Scripture can be an escape if you only see what you want. Prayer can be an escape if you don’t do it well and don’t listen. I heard a quote from someone (I forgot who): How do I become a saint? Will it!
    Decide not to be distracted. Decide.
    “So I say to you: Ask, and it will be given to you; search, and you will find; know, and the door will be opened to you…If you then, evil as you are, know how to give your children what is good, how much more will the heavenly Father give the Holy Spirit to those who ask him!” Luke 11: 9, 13.

  • victor

    I don’t disagree that Facebook is in decline and that when they find a way to add ads to their mobile apps (which they need to do to stay in business), it will truly be the end of them. But I don’t see a huge distinction between Facebook and a site like Patheos to be honest. Both are about generating revenue through selling ads, right? If the posts my friends write about their kids on Facebook are there just to get my eyeballs looking at the ads on the right, then what are Mark Shea’s posts on Patheos doing that’s really any different?

  • http://www.godandthemachine.com Thomas L. McDonald

    It’s an interesting question. I pretty much admitted it when I wrote that “You get a similar deal here at Patheos, but with more Mormons.” The blogging model is more akin to a newspaper, where you get longer stories with ads interspersed. Facebook is more like a conversation in which someone pauses every 5 minutes to say “Drink Coke.” I don’t think people mind too much that Hulu runs some ads, but they’d mind a lot more if someone texted or tweeted them ads at regular intervals.

  • victor

    Ah, okay. I totally missed that on my first read-through (which is a shame, because it was actually a very funny joke). I personally don’t mind the ads on Facebook, though — as long as they stay off to the side and aren’t inserted into the timeline. Since they try to generate the ads based on my interests and my friends interests, a lot of the headlines could also read as TV listings for the most custom-tailored, special-interest reality shows ever created: “Catholic ADHD Coach” being my recent favorite (“Okay, squad! Let’s run some drills. No! Rosary time. No! Now drills!”).

  • http://www.godandthemachine.com Thomas L. McDonald

    I had to look that up, and yep, Catholic ADHD coach is real. Oh my.

    And the ads will be in the timeline: I’d put money on it.

  • victor

    Sadly, I think you might be right. At that point I’ll have to resort to using Facebook just for the odd “Hey, do you still work at X and can get me a deal on Y?” message and maybe go back to blogging, like it’s 2002 all over again.