Tuesday, July 10, 2007
Research Note: Is Facebook Friendster 2.0?
Facebook might - just might - be the Geocities of the 00s.
Now, certainly, that sounds a bit heretical given the current state of Facebook hysteria.
But let's take a quick look at the facts. Surely, the opportunity cost for Bay Partners' (oh wait, I mean their LPs :) of making a Facebook Fund is making, say, a Google fund...or even a general hypersocial fund, etc - in other words, very, very high. This is irrational exuberance if ever there was any.
The key question is - from an economic pov, how much long-run value is Facebook really creating?
Here are a few reasons why I've been asking myself this question.
1) The platform strategy is kind of yesterday. It fails to maximize the potential complementarity between Facebook and apps, by keeping things semi-closed. The new platform strategy, as we all know, is to get inside-out, widgetized, blah, blah, blah...
2) Is Facebook search, is it distribution - or is it just technology? If it's search, is it really more efficient than Google? I'm not sure Facebook has a clear read on what the new value chain looks like - ie, where they are going.
3) How much of Facebook's success is driven by the right marketing strategy, vs the right strategy - ie, how much is a function of targeting the right schools, opening up to the masses at the right time, etc? My guess - quite a bit. That's all well and good - but it can sustain value creation for only so long.
3.5) As evidence, Facebook seems to be unable to discover an advertising model that creates a relevance advantage - relevance on Facebook is (much) lower than on Google (which definitely should not be the case).
4) The biggie - aren't hypervertical networks/communities radically more efficient than Facebook? I've seen almost no evidence of defection from networks/communities where people actually get together for a reason (ie, MakeUpAlley) to Facebook.
There are echoes of Friendster's hysteria - and it's underlying economics - in Facebook's success.
Let me put it another way. Is Facebook really creating more long run value (for people, through interaction, etc) than, say Twitter? More technically - is there more liquidity/plasticity on Facebook than on Twitter?
That's a tough question. And I'm dubious. If you agree with me - even to a very small extent, then you must also agree that Twitter must be worth a billion plus - or that Facebook is relatively overvalued.
Time will tell if Facebook is creating durable value or not. But it might be wise to take the current hysteria - which may be predicated as much on the Valley's need for someone and something to believe in, as on real value creation - with a grain of salt.
Please, define the term "hypervertical" for us readers who doesn't have english as our first language. I never heard this term before. Thanks in advance.
It just means a very tightly focused vertical something - like a tennis community, or a lawyers social net.
Thx for the comment.
Honestly, I'd always figured MySpace to be the new Geocities, but it's still alive and kicking, so take my prediction abilities with a grain of salt.
Personally, I've never gotten that sense with Facebook though, which to me always had a clear social utility. The platform makes it even more socially valuable - it links together my activities on disparate services, and letting me share those activities with friends even if they don't belong to those services themselves
. It eliminates the need to reconstruct my social network a half dozen times on disparate services. That's valuable both to me and developers providing the applications.
Case in point, the Twitter example. Whenever I update Twitter now, it shows up in my Facebook newsfeed, for all my friends to see - regardless of whether they're on Twitter or not. It increases the value of both Twitter and
Facebook (it's not a zero sum game).
In that way, it's not a platform in the way that AOL or Yahoo are platforms. What I think they've managed to do is get right what various widgetized start pages (netvibes, igoogle)have been trying to do for years.
And I think their future success lies in continuing to wrestle the "start point" of web surfing away from Google's search box and onto Facebook's newsfeed.
I don't really agree with you.
1) The Bay Ventures move is simply a method for rapidly testing features that can/could be added to other offerings. Darwinian survival of feature based on actual usage rather than pot luck.
2) Advertising is already a revenue stream but I agree that I don't see it being as significant as Google. One problem being is that they, at this stage, can't tie in the data around user profiles/behaviour for the simple reason I don't think Microsoft's advertising system is set up to utilise that information (or for that manner even Googles).
But what it does have is a treasure trove of demographic/market research information that it can anonyomise and on sell to FMCG/market research companies.
3) I could see them doing some premium service stuff possible around digital Identity.
4) While I don't see Facebook causing a massive fall in vertical/niche social networks, I do see them dragging on their growth as current Facebook users create (very)niche social networks within Facebook to do the same. The Pink Pug Appreciation Society Group anyone?
I do think that the Facebook hysteria is huge but not unwarranted. However, the hysteria does obscure the value and the reality of Facebook. MySpace is about expression, Facebook is about managing your social network (or social graph).
Besides, Facebook has passed the bus stop test*.
* The best stop test is passed when you here an technology or service discussed at an otherwise normal bus stop in an otherwise normal city. Variant on the Mum Test but with more relevance.
just my 2p...
2) yeah, what's with the inelegant advertising targeting? Shouldn't all that personal and peer preference info make mining it *a little bit* be a piece of cake? Surely Facebook have the demand to fill their inventory a bit better?
4) a biggie for me is the ease with which the facebook apps let niche socialnets plug in and actually thrive on facebook. As FB has (so far) a more relaxed attitude to commercial activity, this may be a brilliant thing for all. We shall see.
Aside from marketing strategy Facebook seem to have a number of other good things going for them:
- strong technology (scaling to 10s millions of users with virtually no problems at all)
- great user-interface and product design
- trusted brand
Geocities or Friendster never had this kind of traction with ordinary users - it's really taking off here in the UK.
Given that placticity and liquidity are almost presented as "absolute or absolutely positive values", perhaps there are other lock in advantages that we are not taking into consideration?
There are very few true platform strategies. True platforms are invisible. Facebook or any other consumer facing web application/community do not want to become invisible. You cannot be both a platform and an application.
"The platform strategy is kind of yesterday"
They are not yesterday it's just that you do note see them, and that's how it should be.
Also lets not confuse a platform strategy with an edge distribution strategy ("widgetized, blah, blah, blah")
Facebook has the potential to be the new WalMart where square pixels will sell to the highest widget bidder. Youth marketing turns into the social value chain.
Let's just call it a working premise: