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Four Ways Facebook Could Unravel

July 25, 2012 · 3 comments

in Social Media

facebookFacebook may be one of the most talked about companies on the planet right now, rocketing its way to one billion users, but its shakey IPO a couple of months ago, and subsequent lacklustre stock valuation, has certainly revealed a chink in the armour.

Suddenly the social network that could do no wrong is beginning to show its first signs of vulnerability. So what are the key flaws in Facebook’s business? Can its social network monopoly really be challenged?

We’ve rounded-up four of the biggest concerns over the future of the house Zuckerberg built.

Ad value drops

It’s no secret that Facebook’s business rests on a bedrock of advertising. The company makes more than 80% of its revenue from serving ads to users and is constantly looking at new ways to help advertisers market to its massive userbase.

But how valuable is Facebook’s advertising to brands and businesses really? That question was put into stark light earlier in the month when the BBC ran an investigation that found thousands of fake, bot-controlled, Facebook accounts were ‘liking’ advertiser pages.

Advertising agencies that work with Facebook told the BBC that more and more businesses were – understandably – refusing to pay for their services, because the majority of their Facebook fans were not human. Facebook says around 5% of its accounts are thought to be controlled by bots, but the company has a very vested interest in playing down these numbers.

Click through rates on Facebook ads are already very low, and if the fake account issues spreads further then advertisers – and investors – may begin to lose faith.

No money in mobile

The biggest concern investors had during Facebook’s IPO in June was the social network’s ability to monetise its mobile presence.

Facebook built its empire on desktop, where there was already a tried and tested online advertising industry to emulate. On mobile, advertising is still very much in its infancy and there’s a great deal of debate over its effectiveness. Mobile ads cannot be tracked as well as online ads, so advertisers have little visibility on their campaign’s effectiveness.

Recent figures from TBG suggest that Facebook’s mobile ads are doing fairly well when it comes to CTRs, but it’s still very early days. As more and more Facebook users switch to mobile, less and less money will come from its desktop advertising business. Can mobile make-up the numbers? We’ll have to wait and see.

Privacy breach

Facebook has taken a great deal of flak over its privacy settings and has already been forced to cave into demands from government regulators to fix its opaque privacy policy.

So far, this hasn’t affected Facebook’s meteoric rise. But imagine if Facebook did suffer a substantial privacy breach. Hackers managed to bring Sony’s PlayStation Network to its knees, stealing millions of account details. If something similar happened to Facebook, where so much personal information is stored, it could be disasterous for the company’s brand.

Also remember how Facebook makes its money – through advertising. The best way for Facebook to increase its value to advertisers is to enable better ad targeting and the easiest way to do that is to hand over more personal information on its users.

Facebook’s product is its users, but if it loses their trust then it’s game over.

Failure to innovate

It’s often said it’s no use innovating once your business is in decline, instead you must be innovate when you’re at the top of your game.

Facebook is now at its zenith and if it wants to continue to dominate the social space it should be innovating right now. As we said, Facebook emerged on the desktop, but the world is going mobile. Facebook’s mobile offering doesn’t bring anything new to the table, it’s essentially a mobile version of the desktop service.

This means there is plenty of opportunity and space available for a new kind of social network to emerge that is built for mobile devices right from the ground-up. If Facebook wants to stay relevant in this fast moving market, it needs to take a radical and mobile-led approach to social.

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{ 3 comments… read them below or add one }

Sara July 25, 2012 at 5:43 pm

David,

You make very good points, but the “draw” of Facebook is always going to be the ease by which people can connect and socialize. I don’t believe that will go away and as they innovate the other areas more, they’ll maintain a good market share, no matter who else comes along.

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David July 26, 2012 at 7:03 pm

Hi Sara,

I agree that innovation is the key, as long as they keep innovating (and snapping up the brightest talent in the pool) then they are likely to stay strong. The downfall could come if they ever become stagnant with this or believe themselves to be too big to need to try new things.

The ease of connection is their key draw, but that doesn’t mean someone won’t come along who can make it even easier or fun. It would take a lot to get their users to up and move, but then again they said that about MySpace… lol

David
David recently posted..Euroforce Recruitment – SEO CampaignMy Profile

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Oswald Rodrigues July 28, 2012 at 9:15 am

Does that mean Google Plus is going to be the next big thing? Many are already abandoning Facebook and switching over to G+ which is growing steadily.

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