I want to make a bold prediction: Facebook will not be the head honcho in social media by 2020. In fact, I believe LinkedIn will surpass the value of Facebook in that time. Why? The main problem rests with the way Facebook makes their money. Their money model is in direct conflict with their customers wants. Just like Yellow pages and free to air TV before them, Facebook is caught in the dilemma of increasing advertising to feed the shareholders by interrupting users enjoyment of the site. Essentially they are pissing off their users to earn more bucks. Here are my three reasons why Facebook will fall and what they can do to fix it.
THREE REASONS FACEBOOK WILL FAIL
1) Sharemarket Listing: I have been predicting Facebook will fall from grace as the top social media site since the day they listed on the New York stock exchange in 2012. I have worked for several global IT companies and understand the pressure of quarterly earnings first hand. At HP and IBM the pressure of 'making the numbers' was intense, even at the detriment of client satisfaction, staff well-being and the company brand.
The problem in the system is that the shareholders only measure success in short term financial measures. By being part of this system, Facebook now is under pressure to ever increase returns to shareholders. There is never enough profit, they always want more. Hence the rapid increase in advertising products and revenue since listing. Sure Facebook is celebrating their financial success now, but at what cost? The issue is that if financial success comes at the detriment of client satisfaction you only hold clients until a better solution comes along. So the more money you make the more clients you lose. Yellow pages becomes Google, Free TV becomes Pay TV and Facebook becomes...the next big thing.
2) It's just not cool anymore. Think about the people who are joining Facebook now. Grandparents are the fastest growing segment of new Facebook users. The youth have already turned off in favour of the advertising light Instagram, which Facebook bought in 2012 for a cool $1billion.
The issue is the temptation to advertise on Instagram is too strong. If Facebook starts to drop revenue, where will the advertising dollars come from? The popular product where the users are of course! Right now that's Instagram. They have already started this program but it is quite minor; for now. Then when Instagram becomes less cool, where will the users go next? Facebook can't buy everyone, especially after spending a ridiculous $19 billion in 2014 on a non-revenue product WhatsApp. Clients will just go to the next best free product that doesn't have as much advertising.
3) There is no loyalty, only scale. The reason Facebook is the number one social product now is that 'everyone' is on it. It's scale, not to be confused with loyalty. Apple has loyalty, Facebook has scale. There are a lot of users annoyed at the privacy issues, advertising intrusiveness and constant changes at Facebook. But they don't move to another platform as their isn't a suitable alternative which has the same scale.
I remember a similar situation at Yellow Pages in Australia. I started there just at the time when they realised that digital was going to eat their print lunch, so I was hired to market the digital offerings. Yet they couldn't quite let go of the print cash cow. It was too tempting to keep charging clients huge fees for their listings.
I remember being in the boardroom in the final year, when the financials were being presented. Revenue was the highest ever, genius! However client satisfaction and numbers were crashing - basically they just charged the remaining few more. Not so smart. The final few clients hung onto Yellow as they were too afraid to not be in the book.
But soon the tipping point arrived and EVERYONE jumped off at once. In two years the book was a shadow of its former self. Facebook will face the same future if they keep increasing advertising and eroding client satisfaction. There is no loyalty with these sites, not with clients and not with advertisers.
Who will be the next king of social media? My prediction is LinkedIn. Why? Because their business model isn't competitive with their customers. They have advertising but it is less than 20% of their overall revenue. Their real business is premium accounts, which means you pay for what you get. This is aligned with the users needs so if you want more. you pay. If you don't want more you don't and the standard product is still super useful.
Secondly, Facebook is entertainment and LinkedIn is knowledge. With the overload of information and entertainment options at our fingertips, Facebook faces competition from other forms of entertainment. LinkedIn however is useful and getting even better over time. Having blogs and famous influencers keeps it ahead of the crowd. People will turn off cat videos and turn more towards blogs by Richard Branson.
WHAT CAN THEY DO?
What can Facebook do to reverse this trend? My thoughts are to provide a premium service with no ads. Just like Spotify, Netflix and other content providers, you pay for convenience of no ads. The other suggestion would be to offer more business services to clients, not just advertisers. Advertisers are no use without the clients to communicate too.
Facebook is a massive business and some would say too big to fail. Enron anyone?? With their bloated overheads, hungry shareholders, limited revenue channels, reduced client engagement, falling client numbers and big spending founder, I believe it is only a matter of time before Facebook falls.
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