Facebook stock hit the new low last Thursday after Q2 results were revealed. Also closely linked to Facebook, game-maker Zynga has lost over 40% of its value. These stock falls have raised feelings of déjà vu in investors of the merry days of the dot-com buble. Are we facing the sequel: Social-Media Bubble-Revenge of Stock Plummet?
I believe not, based on the following reasons:
What separates Facebook from the failed IT-bubble companies?
1. People: With the expection of the Great China Firewall, Facebook has conquered the world. Over 900 million users would make it the third biggest country in the world. Numbers are great, but over 500 million active users also prove that Facebook has become much more. It is incremental part of the behavior of the people and increasing number of people have developed Facebook a daily (even hourly or constant) habit. And we all know how hard the sticky habits are to break. Also we from the industry are naturally calculating Facebook profits all the time, but average user could not care about less how Facebook ad sales are going. Of course on the long run the financial performance and user satisfaction should be inseparable, but it is easier to tweak on your business model when you have the people already using your network than other way around.
2. Profits: Despite making loss in the latest quarter, the revenues of Facebook actually beat the industry estimates. Also Facebook has already been profitable many quarters before. This is a proof that their business model works, at least to some extend. That could be hardly said from many other failed Internet-companies.
3. Potential: Google has struggled with social: whether it is Google+ or making YouTube profitable. Apple has had Midas touch in everything… expect social. That is why they allegedly have talks with Twitter. Facebook has been the only company to really capitalize and succeed with social. This has made it as one of the key players in the battle of Internet domination (other participants in the ring: Apple, Google & Amazon).
So comparisons with the high-flying and crash-landing dotcom rockets to the new big blue are unjust. They pretty much had only potential, but neither the users nor the viable business model. Facebook is not a bubble, but that does not mean that it does not have certain serious challenges. The future success of Facebook lies in how it can solve the following issues:
1. Advertising revolution: The advertising model of Facebook is based on really traditional online media sales and the effectiveness has been questionable. Sometimes it feels that only drunk people click on the Facebook ads. The new ad units have been disappointing at best and almost disastrous at worst (ie. Facebook deals). Facebook has to find a way to get people to see and engage with ads when and where they want to actually see them. Google cracked this and it has been the core reason for its success. Until now Facebook has just poorly emulated Google with a mix of traditional display, with average results.
2. Going beyond advertising: The information of Facebook 900+ million users is a goldmine. There just should be a way to utilize it better. Currently the revenues beyond ad sales have been quite modest. This also raises the controversial question which Facebook has actively been avoiding. Could users pay for Facebook? And how much would they pay for it and for what elements? There is thin line between the effective utilization of user data and the utter exploitation of it. If you do the latter, the deliquate trust between the service and users has been ruined forever.
3. Mobile: Future of Internet is the Mobile. And Facebook damn well knows it, with over 500+ million mobile users. As smartphone will be the computer of the new generation, it needs more innovative and effective mobile solutions than just sponsored stories in mobile (although they have been performing above average). The rumoured Facebook phone is step to the right direction, but just one of the first steps into the mobile world.
“Facebook is not a bubble, but it has not reached its full potential either”
Pinterest drives more sales than Facebook
Pinterest drives more traffic than Google+, LinkedIn & YouTube combined
Pinterest hit the 10 million unique visitors faster than any other other site in history
In retrospect, it is totally obvious that Pinterest has become so huge. It is such a great representation of the current times we are living in:
1. Many want to express themselves, few want to invest time in it
I think the main drivers in the rise of is the Pinterest is the growing amount of self-obsession combined with the laziness typical with many people. It is perfect tool for the modern man, who evaluates how his success by the number of likes and comments. Or values celebrity over his own health. Pinterest gives you easy tools for self-expression.
If we think about evolution of self-expression in the Internet, it has become more and more easier. The tools which have provided the solutions to the lazy users have been winners.
When people had own websites, you had to have technical skills to create them. Then came blogs, which reduced the technological barrier, but you still had to spend lots of time to actually write the blogs. Twitter made the expression even easier with the character constraint. Then came instant photo applications. Also social networks have undergone the same transition. MySpace had much more opportunities to pimp your profile, but Facebook showed that usually people do not want to spend time creating something themselves. When it was easy enough, everyone started to share what they had for lunch and started to also think that someone really cares.
Pinterest frees you from creating anything yourself.
In Pinterest you do not have to be a content creator, you just pin. You can grab whatever content you feel represents you and use it. No need to write even 140-characters or take photo. You are just a curator. Pinterest did to web services, what mash-ups did to music.
2. Visual learning and expression
The last centuries have been run by written word. Now we are moving more towards visual world, where we increasingly learn & get our information from visual sources. Pinterest is good example of it. Other main players in this change is Instagram (no wonder that Facebook bought it) and YouTube.
Underlying philosophy in Facebook is that we are defined by our social connections. Facebook works actively to blur all the lines of your different personas to merge it as one in their network. Pinterest on the other hand is build around our interests, which gives its huge opportunity for certain target groups. The great thing in the Internet was the opportunity to be something else or something more than your everyday self. Pinterest gives that opportunity back to us. If Facebook is reflection of who we are, Pinterest might be more of about what we want to be. Usually the hobbies tell much more about people than their CV.
The future succesful web services are build on the laziness and the self-obsession of the users.