3 Columns Skeptical of Facebook’s Long Term Value

by Ben Bajarin   |   May 18th, 2012

In light of Facebook IPO day, I thought I would share three key columns I wrote about Facebook. I remain skeptical of Facebook’s long term value. Specifically the business model and sustainable value to those they depend on to make money. Facebook, like Google, is a company where people are the product. The big difference in my mind between those two companies is that Google has quite a bit of proprietary IP around solving a problem–search. Facebook may have some enabling technology, may or may not actually be a sustainable social platform, but is the problem they are solving one that is defendable?

If the answer is yes then how do we explain the massive migration from MySpace to Facebook? Yes Myspace did not innovate and did not develop solutions that cater to a larger demographic. Facebook did a great job expanding their value from college students only to a wider audience. That being said what is stopping someone from coming up with a better idea, or a better way to stay in touch, than what Facebook has? Is the problem they are solving really that hard to solve?

The first column I wrote almost a year ago for TIME looks at this subject of whether Facebook can go the way of Myspace. I encourage you to read it as the first of the three columns I wrote. It will give you a timeline of my thoughts, how they evolved, and the overall case I make against the long-term value of Facebook.

Could What Happened to Myspace Happen to Facebook?

I decided to revisit this topic just earlier this year, again for TIME, where I explore if Facebook has peaked and we are now witnessing the beginning of the end. This particular article is by and large the most read piece of content I have ever written. It could picked up by other major outlets like CNN, the AP, and a few others. And if you take a look at the comments you can see how heated the debate gets. My overall point was that if you look at users of Facebook who have been on the service for a length of time they tend to see their usage decrease. We can call this Facebook fatigue but the initial thrill of discovery weans and the service becomes more management than discovery. Discovery, in my opinion, is one of the stickiest psychological aspects of any online service. Think about why you spend time browsing in a mall, or electronics story, or Amazon, or an App store? It is largely due to the thrill of discovery or the hopes to find something new of value.

This is the same experience for a new Facebook user. It is the thrill of connecting with old friends, colleagues, or classmates that engaged us in the beginning with Facebook. Seeing what loved ones from a far are up to, finding new friends or interests. But then there comes a point where that initial thrill of discovery weans and the service can become overloaded with information you don’t care about or are not as interested in any longer. Things like this are the root of my concern of Facebook over the long haul.

Is This The Beginning of the End for Facebook?

My most recent column, which we ran here on Tech.pinions, was on why I wouldn’t invest in Facebook. My overall reasoning is built upon my above two points and columns. That if consumers, the longer they use the services, are not as engaged with Facebook then the value to an advertiser goes down.

Recently news surfaced that GM was stopping advertising on Facebook due to the ads not paying off or delivering the ROI they expected. This was predictable and not surprising based on the arguments I have offered. When you think about why ads work on TV, print, and other forms of offline media, it is because the audience is either engaged and captive, or highly segmented, or both. Think about why ads work in Men’s Fitness for example, a service I subscribe to. I am interested in fitness, exercise, etc., and nearly 90% of the ads I see in this magazine are relevant to the subject matter of the captive audience. The same is true with TV shows and a range of other mediums where advertising has been historically successful.

In all of those mediums where advertising pays off, there is a captive audience, engaged with content directly related to the theme of the ads. This is not true of Facebook. If the content I am engaged with is that of friends and family then how exactly do advertisers match their content up with me in a relevant way? Facebook has to hope that I share my interests, likes, dis-likes, etc., in order to get a detailed information about me as possible in order to help link advertisers up with me based on my interest. The only problem is that the thematic content related to sports, fitness, hobbies, interests, etc., is not the reason I go back to Facebook. It is simply to stay in touch with friends and family.

The psychology of what has made ads useful in other targeted content mediums does not translate to Facebook. It is because of that point that I struggle with Facebook’s business model.

Why I wouldn’t invest in Facebook

In the column above I point out why I think more vertical social networks, ones that cater their content, services, and engagement around specific things, have more of a chance at being successful. Social networks for car lovers, food lovers, fashion fanatics, fitness, health, mothers of kids of all ages, etc., provide more valuable content and lead to a more captive and segmented audience. It is in these environments that an online social platform can thrive.

Maybe Facebook will figure out whom to segment its social platform even further in order to drive more engagement around specific subjects. I think this will be very difficult for a general-purpose social network to accomplish but perhaps they will figure it out.

For now I will remain skeptical and observe as more vertical social networks arise and become more valuable to advertisers.

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Ben Bajarin

Ben Bajarin is a Principal Analyst at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Full Bio
  • Touchejb

    Kudos Ben, no fun being a lonely voice among so much bubble-blowing hot air.

  • Garden-Share

    I love this article and have built my entire business around the vertical social networks model. Thank you for identifying the fact niche is coming and FB has missed the opportunity. To me FB has replaced the yellow pages and white pages. They have a good model like the former mentioned before. Facebook made it all social and are the first. I too am skeptical…

  • Farharbour

    I agree with the main points… One thing that is not mentioned, but has come up repeatedly with my online friends is that once NewsCorp bought MySpace, that association with the voice of intolerance, Fox News drove a lot of people off of the site and on to Facebook… sort of a declaration of ” uncool” . Could that happen to FB?