December 07, 2011

Do you really want to bet your business on Facebook?

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Today's article (Facebook: Zynga's #1 Frenemie) prompted this blog post. 

While Zynga stands as a multi-billion dollar example of the dangers of platform squatting, many of you might be doing in a smaller but still deadly way.  Examples: you don't have a website anymore, you build a big Facebook Page following instead.  You don't build a web property to sell your products (see this a lot now in books), you rely on Facebook instead - thinking, "everyone is here, why not build it into their stream?  You base your real estate, insurance or home repair sales on your Page, leaving your older properties abandoned to wither.

Startups from Color to Spotify bet-the-farm on a long and cozy relationship with Facebook - who could turn all of them off with the flip of a switch.  Retailers, small business owners and even public figures are all provisioning the Facebook closed platform (emphasis on closed) to reduce costs and presumably fish where the fish are hooked.  

But here's the rub: Facebook will eventually have to eat their babies to grow into their valuation. Still private, Zuckerberg gets to report vanity numbers only, playing with Eric Ries calls "success theatre" with it's investors and employees.  Time spent, number of active users, etc., all dominate the Facebook story.  That will change quickly when they go public and New York analysts descend on them to question their revenue-valuation multiple.  If the social-bubble breaks (and it's being poked right now in the cases of LinkedIn and Groupon), who knows what Facebook's leadership team will resort to?

Look at Google, seven years post-IPO. Steve Jobs can testify: You can't trust a company that's on fire to triple their top line quickly.  Thus andriod.  Now, Google+ is tied to employee compensation and the sacred search algorithm, protected for users, is now biased to reward websites that include +, Places or Circles. Anyone in the valley will warn to avoid getting close to them early, because big and hungry companies "may accidently kill you." 

Back to Facebook.  If you are using a Page to market your products or services, it's pretty clunky to say the least.  You can't conduct giveaways or polls, lest they shut down your account (which is based on your personal account, which also goes away).  The apps they require you to use require too many steps and in our privacy-centric world, result in less conversion.  So now, you lose all the web-innovations that power super sites like Zappos, Amazon, etc.  

At Yahoo, I've seen this first hand.  When I joined, we had dozens of dotcom partners in areas where eventually we decided to 'get into their space' to justify our lofty valuation.  We were, by 2004, competitors with everyone who made money.  Facebook will be the same.  

I understand the business logic of being in the app business, making your ultimate bet on Apple. As a mature company, they aren't likely to flip a swtich and get into the app development game, killing all the Fred-In-the-Sheds to make a few more bucks.  But, Facebook is likely doing skunkworkss right now to build their own social games, daily deals redux, publicity services, banking and loan services, mobile devices and for all we now VOIP telco services.  If you currently make money via them, exclusively, you want want to diversify your business web outreach.  What if they turn on a pay-for service for Page owners who want to have ANY links to purchase or generate leads?  

Consider what happens when you rely on Google, yet somehow are in their business development plans.  When they tweak their search formulas, big changes happen to your business. What if they tweak search to devalue links to Facebook pages, like they've toyed with in the case of Wikipedia and Flickr? Ask LA startup Mahalo, where they had to layoff employees after a regular Google update.  First they were a human-search company, then after the Google thrashing of their business, they settled into a video-help resrouce.  They didn't have an option.  Keep your options open begins to make sense again - instead of cozying up exclusively with a cub company that's got paws bigger than Alaska. 

 


Comments

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What if they turn on a pay-for service for Page owners who want to have ANY links to purchase or generate leads?

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Great theory and strong arguments! I can't agree with you more!

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What if they turn on a pay-for service for Page owners who want to have ANY links to purchase or generate leads?

Commentor

Hi Tim,

Great article!

Interesting timing as I just attended a SaaS User Group luncheon with guest speaker Kevin Colleran, former Facebook executive. Kevin was one of Facebook’s first 10 employees and served as Global Partnership Lead. Not surprisingly, Kevin had a much different spin on Facebook.

One area he touch on was application development on the Facebook platform essentially encouraging developers and business to focus their attention on business applications. He sees this as a largely untapped market.

In terms of keeping your options open, what would be your advice to a application developer or business interested in using Facebook's platform to grow their business? What are the alternatives you see as better fits?

Appreciate all your insights...especially "Today We Are Rich"!

Best regards,

Paul


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