Mark Ritson tries to explain Douglas Rushkoff counter-intuitive prediction that Facebook is cashing out, sensing its possible decline:
(see my own, I believe important, remarks below)
“In an article for CNN earlier this week, he was in no mood for equivocation. He believes Facebook’s current success will be short lived. Rushkoff argues: “We are witnessing the beginning of the end of Facebook. These aren’t the symptoms of a company that is winning, but one that is cashing out.”
What can he mean? Surely Facebook is about to become one of the world’s biggest brands? That’s certainly been the message from a stream of identikit investment bankers who have appeared across the national news networks over the past week to explain Facebook’s imminent global domination.
It has, after all, become the biggest single provider of display advertising in the UK with mega-advertisers like Procter & Gamble paying millions to advertise their brands using its pages. And if the rumours are true, Facebook generated £260m in profits for 2010 and has an even rosier outlook for the year ahead. Perhaps best of all, banking behemoth Goldman Sachs is trying to find a way to allow billionaire investors to take a $1.5bn share of the company – a deal that values Facebook at $50bn.
Don’t just count the money, follow it to the source. Businesses run on customers, not sales
So where is Rushkoff coming from? Let’s ignore the enthusiasm of Goldman Sachs to encourage its clients to invest billions of dollars in Facebook. Goldman is a brand that long ago sold its soul, its client based integrity and its once sacred 14 principles in order to make as much money as possible. That, at least, was the conclusion of the US government last year when it fined Goldman $0.5bn for selling collateralised debt obligations (CDOs) to its clients during the credit crisis while simultaneously shorting the very same investments for its own profit.
Goldman’s investment vehicle and its $50bn valuation of the brand should not be deemed as evidence of Facebook’s long-term prospects, but rather the bank’s short-term interest in making money irrespective of the investment in question.
But surely there is still no denying Facebook’s long-term business potential? It is here where Rushkoff differs from the bankers and investment analysts. The latter simply count money, but Rushkoff looks to the place where the revenues originate. Don’t just count the money, follow it to the source. Businesses run on customers, not sales. And Rushkoff believes that Facebook is building its business from a fundamentally unsustainable base.
It’s not that MySpace lost and Facebook won
Social media, as Rushkoff sees it, is just as temporary and fleeting as a nightclub or a party. At some point the movers and shakers are going to do just that and when they do everyone else eventually follows.
And the frightening speed with which the likes of Friendster and MySpace lost their lustre illustrates the paradox of making a long-term investment in any social media brand. The scare over the weekend that Facebook was going to close itself down in March, and the thousands of stories and tweets that erupted as a result, illustrate just how mercurial and transitory social media brands actually are.”
My own take on this:
Though I see no sign of any downhill trend at Facebook, I think it is important that we distinguish the two roles of Facebook. One, as a public or ‘commons’ utility, and two, as a profit-maximising business selling our attention and hoping to intermediate transactional social commerce. The problem is, as what we have seen with many previous collapsing social media, is that the connection between both roles is not at all clear.
Regarding the business side: Google has certainly shown that unobtrusive transactional advertising is a realistic option, and if a social media utility like Facebook succeeds in finding the same type of unobstrusive advertising, it may succeed. However, so far, there is very few proof that inserting transactions between social media communication is working. And the reason this is not working, brings us to the other role of Facebook and social media: as public utilities.
People use social media primarily to communicate and organize with their friends, not to monetize their social relationships or with a mindset of consumption, hence, aggresive social commerce is frowned upon and avoided, as is obligatory and obstrusive advertising.
This may actually mean that social media are not appropriate as business vehicles, and thus, that the long term commitment of business in funding corporate platforms, is a dangerous bet. Long-term failure in profitability would then leave two main alternatives. One is regarding social media as publicly funded utilities, which seems unlikely in the current conjucture; two, is that they would exist as commons-governed trusts, on the model of the Wikimedia Foundation and the FLOSS Foundations. These trusts, or other forms, would be primarily concerned with the continued existence of the utility and would strive for a variety of income sources to make them sustainable, this would include pubic funding, commercial funding and crowdfunding, but in any case, they would not be profit oriented.