The Facebook failure

By Wicked Mike

Let’s face it: Facebook withholds information so that fact and hype are difficult to differentiate.

With Facebook aiming for a $10-billion initial public offering (IPO) in 2012 that would value the company at $100-billion, and its founder, Mark Zuckerberg, a media celebrity even before The Social Network was released, it’s easy to fall prey to the marketing speak: Facebook is a hugely successful business that’s almost conquered the internet. That’s not true. And there are signs pointing to trouble ahead.

Facebook’s power can be determined by interaction and, more importantly, profit. The company claims to host 800 million accounts but the BIG question, “How many are active?”, is one that they will not answer. However, revenue is easier to deduce as it’s mostly based on advertising.

DoubleClick reported that Facebook gained an enormous one trillion page views in June 2011 (the more reliable ComScore pegged the figure at 467 million). This fuelled the rumour that Facebook is bigger than Google – nonsense, but a comparison to Google does offer perspective.

Interestingly, in May 2011, Google became the first site to record 1 billion unique monthly users – Facebook got 737 million. These facts become less relevant when considering that Google’s goal is not to gain page views but to provide search results (approximately 80 billion per month in 2008) that direct to pages on other websites. Google’s 2011 revenue was $40-billion whereas Facebook’s was only $4-billion. Actual profit accentuates the difference. Facebook made $350-million for the year versus Google’s $2.73-billion in the third quarter alone.

Google also became a social media competitor last year with its introduction of Google+ which gained 50 million users in only 6 months. Interaction is a key element for a successful social platform. The popularity button +1 was clicked over 2 billion times per day whereas Facebook’s Like button got 2 billion per month in 2008.

Participation equates to profit. Most South African users don’t need figures thrown at them to realise that their Facebook experience has devolved. The first troubles began with Groups and Pages approximately three years ago. Music is a good example as bands were the quickest to embrace Facebook which, in turn, attracted the Myspace crowd who aimed to gain as many “Friends” as possible so as to win an unseen yet all-important popularity contest. Signing up to many exuberant bands correlated to receiving too many newsletters and event invites. The latter is particularly significant. Initially, given the options of Attending, Maybe and No, most answered truthfully. Overtime, users started pressing ‘Maybe’ even if they weren’t attending so as to maintain “good relations” with their hundreds (even thousands) of “friends”. Now, they simply ignore (and avoid joining new groups). An example is a group that I managed for a nightclub two years ago. At its peak, it had 1380 members. When the venue closed down six months ago, traditionally a big drawcard for a party, only eight people confirmed that they were attending. What happened to cause such a radical drop in interactivity? Smartphones.

As the reading of website content was replaced by social media, so is instant messaging, as an entity rather than a component, replacing social media. Even if the content has no meaningful substance, the trend has been for messages to be as short as possible (with less grammar and incorrect spelling, a degradation matching attention span). Initially, Facebook’s instant chat was the most laudable application. Highly convenient, it encouraged interaction but within Facebook’s bigger framework of groups, galleries, music etc. MXit was opposition but in a limited context until people skipped using their PCs in lieu of instant messaging via Facebook on their cellphones. Some may be addicted to Farmville or Texas HoldEm but overall, less attention is being paid to the broader Facebook which results in less attention to adverts. Less interaction (less “social” in “social media”) means less profit!

Google realised a market niche for more specific advertising when it acknowledged the decline of banner ads. Facebook hasn’t. For example, if you do a Google search for “accommodation in Knysna”, the top results would be relevant and clickable even though they are paid for. But if you want to chat to a Facebook friend about going to the beach, what advert could possibly appear in the sidebar as relevant and screamingly clickable? Consequently, Facebook advertising campaigns have clickthrough rates as low as 0.04% (and even less two weeks into the campaign). Groupon, the biggest ad startup in the past 3 years and an FB advertiser, ran $146.5-million into the red in the first quarter of 2011.
Facebook woes don’t start or end there. It ran at a loss until two years ago. Minus multiple and inactive Facebook accounts, and the marketing figure of 800 million users will be far less. It’s reached saturation level in developed countries such as Canada and the USA. Saturation will lead to some moving on from this “fad” to another. Deactivated accounts are increasing. More and more companies have banned Facebook in the workplace (which is where most internet traffic is generated). HCL Technologies announced that 50% of British employers had done so. Zynga, by far the largest developer of Facebook games (Cityville, Mafia Wars etc.), had its share price drop after its IPO. Look what happened to Friendster and Myspace. So why not Facebook too?

This doesn’t mean that Facebook should be dismissed. It’s still an internet giant but it has to stop climbing the fibre-optic equivalent of Jack’s beanstalk. So far, it’s overcome losses by gaining new subscribers from developing countries such as Mexico and India. The ultimate prize, China, which could deliver billions of dollars, has been impeded by temporary censorship outages. Add to that QQ, the most popular instant messaging app in China which is a giant itself (812 million active user accounts in 2011), and Facebook has serious obstacles.

Hypocritically, I’d trade places with Zuckerberg right now. I’ve no doubt that there will be several new billionaires when Facebook lists. But I wouldn’t share the expected lie of one billion users later this year.

I’m no technophobe. I believe that every business should utilise every tool at their disposal, including Facebook, but with acknowledgement of the limitations of social media – it is not a quick fix that substitutes hard work. I predict a return to the building of personal databases and relevant newsletters for more serious interest groups. For the rest, the majority, there will be less language and more texting.

I’m passionate about the internet but, socially, I no longer know what to do with a thousand “friends”. I don’t care to respond to arguments that have no substance except attention seeking. I don’t care if my cousin’s baby pooped into her Facebook status. I’ve overcome the fantasy that the 18 to 24-year-old (the biggest Facebook crowd) breasts-in-a-bikini is going to message me for a pool party with all her friends (and why should I if her friends don’t even bother to comment on her photos anymore?). I don’t need an invitation to a shopping sale. I can’t bear another change to my home page or group.

What I need is real dialogue but I doubt that Facebook will be sending me a letter via post.

Wicked Mike is a proud resident of beautiful Knysna. He’s an avid blogger at, and owner of, www.loveknysna.com, www.knysnakeep.org and www.wickedmike.com