CNN runs a story about Facebooks rise and supposedly near future fall. The main problem is Facebooks disability to turn the imense amount of traffic into revenues. The challenge of going from popular to profitable. Finding cracks in Facebook is the title of the story, and yes they do find some cracks in the surface, but Facebook is already fixing them.
I saw the pessimistic view from CNN repeated in The Risk Takers blog .
When Microsoft paid $240 million for 1.6% of Facebook it corresponded a value of the company of around $15 billion. The revenue generated last year was $145 million. It doesn't take an economist to realise that the short-term profitability is not very good.
So the question is: has Microsoft paid too much (ie. the fair value is not $15 billion) or will Facebook make money in the long run? Can Facebook convert traffic into dollars?
Facebook launched Beacon, that would allow friends to see one another's activities on other Web sites turning consumer activities into viral marketing, but Beacon failed because the users didn't want it. Beacon was marketed by founder Mark Zuckerberg as a revolutionary invention for the users, the marketers and ultimately for Facebook the company. But as we know, the users did not accept it. Zuckerberg sums up the failure: "We made mistakes in communicating about it," he says. "We made mistakes in the user interface. We made mistakes in responding to it after it was out there."
Beacon actually just follows the same concept as one of Facebooks main features: the News Feed. The News Feed brings the user news about their friends and their activities on Facebook. Upon the launch of The News Feed in 2006 there was protests from users complaining loss of privacy from broadcasting of their behaviour. But this targeted broadcasting of the things you do on Facebook is the unique feature that makes your activities worthwhile. Joining a group becomes a statement and a recommendation. One click, it's stated and your gone. Posting photos and tagging your friends in them also makes your photos a statement of what you do and who you do it with. And so on... The News Feed add value to your activities.
Surely Beacon 1 was marketed very clumsy and has cost Facebook some goodwill points. But while they try to win these points back by giving the users more and better functions they will have time to develop Beacon 2 because the idea is not stupid. It is very similar to the offline world where we love to give and receive tips on goods.
hired Sheryl Sandberg who successfully has built the Google AdWords division and their goodwill organization, google.org.
There is cracks in the surface, yes, but Facebook has a very healthy foundation. Because we haven't loved a web service this much since Google came about.