Tuesday, February 7, 2012

Why I think Facebook can grow even bigger

Like most of you I get more tweets than I can ever handle on my timeline.  While I was doing a quick scan through all tweets on my Home page, I got a tweet pointing to an article written by Jason Hiner, titled 'Let's be honest, Facebook is a badly overpriced photo-sharing and gaming site'.  I took a look at what he had to say and a few comments.

What I realized after reading was that there is a general misconception about what Facebook is about and what it means to every social media products.  Facebook is not about photo-sharing and gaming.  Yes, it has started as photo-sharing site for Harvard students and has enjoyed the big wave of user subscription thanks to casual viral games by Zynga.  But Facebook is not entirely about them.  It's about connecting people and making easy for people share information.

Let me put some disclaimers first.  I am not going to predict how well Facebook stock is going to perform.  I don't have time to analyze through their financial statements and pair that up with Gartner's reports on projected social media marketing growth (although it would be interesting exercise to do).  But what I can share with you is how Facebook potential has not peaked and there are got plenty of rooms to grow.  It's really up to Facebook to execute against upcoming opportunities.

Let me first share what Jason Hiner cited as 10 reasons why Facebook's future is uncertain:

Reason #2, #3, #5 and #6 are just missing the real data.  It's well known that Facebook iPhone app had held the number one spot out of all iPhone applications for  months back in 2011, and users are keep coming back to Facebook because of friends sharing updates, not solely because of games.  Even for those gamers, more people are playing games with each other and this sharing is what makes Facebook sticky.  As for photo sharing, of course, it does not generate revenue, just like Google is not generating revenue when people performing a search.  It's time that people spend on Facebook that turns into revenue combined with personal information that Facebook has about users.  More on that in a bit.

Zynga feels no need to do this
because our friends remind us already on Facebook
I don't think Facebook will be able to enter China anytime soon, and market is not expecting Facebook to either.  It's probably the case that those people who get access to Twitter by getting around the firewall (no secret to hackers in China) can connect to Facebook in China.

Then there are Reason #4, #7 and #10.  Somehow Facebook is doomed because it has already started losing younger users to other competing sites, such as Pinterest, Foursquare, Tumblr, etc.  Added to this is an early sign that Facebook user base seems to be already at peak level and only way to go for Facebook is to start losing users.  Well, I agree that there is a case to be made about slower rate of user base growth, perhaps even plateauing for next several years.  But that does not mean that Facebook is doomed, and it's because of context associated with Facebook already.

Facebook has established its place on people's minds as place to connect with friends and family, i.e. non-business settings where people can hang out and share things (for business folks there is LinkedIn; for mass engagement and promotion, there is Twitter).  Because Facebook has its identity established and has all social graphs which is really difficult to replicate for other social networks, Facebook's dominance in social media is not going away anytime soon.  This does not mean, however, there won't be other social media sites.  On the contrary, there will be more social media sites as I blogged about the other day.  This will in fact help Facebook in near term.  It's because all those new services will have to bootstrap itself, and the best way to bootstrap is to connect to existing social graph from Facebook.

More niche social network sites crop up, more people will find it convenient to have social graph created Facebook, and draw from that social graph (I talked about other best practices in launching new social network service in late 2010).

That leaves #9 and #1.  From what I can tell Facebook's $75 to $125B market cap does look very aggressively valued with lot of things going right.  But as I said earlier, I have not studied Facebook financial numbers to have an educated opinion.

Then there is Reason #1.  Facebook users do not trust Facebook.  Although people grumble about Facebook privacy and usability due to frequent updates, most users are not at the point where they are ready to leave the site.  I think this is where Facebook has really been successful.  They were able to iterate on features to find out the sweet spot for users where people get more value than annoyance from all the changes.  It's a balancing act.  More changes that you introduce, more you will annoy a part of user base.

Although people talk about privacy,
they see value in being part of Facebook graph
But at the end of the day Facebook has been successful in making it easier for users to share things, and do them in a way that it would benefit the user.  Facebook was the first to perfect the news feed and subscription model where you subscribe to your friends updates, effective turning everyone in your social graph into news sources.  It also introduced real-time ticker where friend's updates are displayed near instantaneously regardless how far you are away from your friend.  All these innovations are what made Facebook so successful.

As Facebook continues to set the new standards of easy sharing, they are now sitting on the ever mounting social media gold mine with all the personal data that we shared through Facebook.  Where they can make the killing is to leverage all the information, profile data, work history, place you live, types of things that you like, group of friends that you interact with the most, etc. to provide custom user experience that no one else can (Google is trying to get there as well with their identity merge across multiple products) and all these information is sitting right in Facebook's data center.  And that's what Wall Street investors are eyeing when they are valuing the company at $75 to $125B market cap range for Facebook IPO.

I think the big if with Facebook is whether it can continue to innovate and make it easier for people to share things and remain at the center of social graph for overwhelming majority of people.  As someone has said, if product is free, user is the product.  For Facebook the challenge is to keep the users coming back by making it easier to share and interact with updates from friends.

So what is the verdict?  I think Facebook still has room to grow because it is not about being a photo-sharing and gaming site.  It's about lowering the bar so that more people can connect with each other to share things through Facebook.  And it's been darn good at it for past several years.

1 comment:

  1. fslfacetime0 fslftFebruary 8, 2012 at 3:07 AM

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