General Zuckerberg’s Last Stand

Is it me or is there a growing concern about Facebook’s murky future?  Oh wait it’s not just me.   To make matters worse, current employees now seeing their net worth drop each day, are blatantly being encouraged to stay the course by both their boss and the media.  Facebook’s mounting challenge seems to be worrying a lot of people lately, and the more I read the more I see everybody has their own opinion.

Well FWIW, here is mine.

As Facebook’s General, Mark Zuckerberg famously said:  “we don’t build services to make money; we make money to build better services.”

Mark would do Facebook Nation a solid by finally acknowledging ads annoy people and are not a “service” to users.  Ads might have worked as Band-Aid revenue generation during infancy and adolescence, but now they are proving insufficient as the company matures and struggles in it’s transition to mobile.

First, I have a bone to pick with advertising and why it should not be the future of Facebook.  The main problem with advertising is not rooted in inadequate technology; it’s rooted in the fact that it doesn’t actually add value to you or me.  Ads are meant to interrupt our natural pattern of thought in an effort to imprint a commercial message on the neurons of our brain.  An imprint that, in fact, I wasn’t wanting or I would have sought it out first.

Simply put, ads are an annoyance of life.  Ads are peddling at its purest form and humans have an inherent distaste for peddlers because the act reeks of desperation.  Innovating around ads won’t help either.   Trying to squeeze as many ads as you can in front of people, even deceivingly placing a friends picture on the ad to trick the user for a measly click won’t change the fact that ads suck.  And it doesn’t matter if we can develop a quasi-cool concept like “Pre-Ads” similar to the “Pre-Crime” concept in Minority Report, it will still be a net negative on our society.

(On a side note, propositioning people to buy things they may not be able to afford could be why our country finds itself in the precarious situation we are in today.  But I digress…)

Yet I am no Pollyanna, suggesting Facebook immediately turn off advertising entirely since this is the main revenue source, but they need to find a new self, and quickly.  Mobile is becoming the primary means of access for a growing number of users and Facebook is in desperate need of a long-term solution if it’s going to be a viable business.

So with that behind us, I sure hope Facebook can turn their attention towards more fruitful business models.

My answer: Add value to the consumer, not the advertiser.  Because Mark, I’m afraid under your leadership the servant is quickly becoming the master.

Adding Value To Users
So what does “add value to the consumer” actually mean?  Adding value means making what I do each day, as a consumer, easier and more pleasant to complete.  The success of any product or service lies is the richness of value it creates for me, as a consumer.  Early on (and arguably still true today) Facebook added much value to life by connecting us with our friends.  And that was all nice and neat back in the day before social networking became commoditized.  It’s become clear Facebook needs to stand up, rediscover, redefine, and re-institute a business model around the value it creates in its users lives.

So rather than ads – which I will continue to dodge and evade like the plague – why not focus on commerce, payments, purchases and creating value with the resulting data?  Why not, since Facebook already has my identity and interests all figured out, make my life as a consumer easier and more efficient rather than further interrupted?  I would appreciate things like saving me time, saving me money, helping me understand more about myself and my purchasing habits and then aid me in putting that information to work?  Help me identify where I buy things and why?  And maybe identify what brands I am attracted to and which ones I stay away from?

Further, Facebook could then quickly assist me in accessing specific brands I respect and usher in repeated interactions/purchases for me.  These are the things that matter to us as consumers.  These things help us better manage our lives.  And believe me, I would use Facebook more if it added more value to my life.

Again, we hate ads… but we like buying stuff!   A subtle but HUGE difference lies between those two concepts and if Facebook can dig deep enough into why there’s a difference they will discover the answer is found within the delta.

General Zuckerberg needs to plot a game plan for Facebook that is not only a sustainable but growing future as a business.  A number of business models – outside of the traditional “lead generation” advertising we’ve come to despise – are possible.  Here’s just a few focused on adding value to the everyday consumer.

The world is rapidly going mobile and an incredible opportunity is looking Facebook right in the face.  They have almost one billion identities of people around the world.  Amazingly, these Facebook users are also consumers who pay for things. And I bet if you polled a large enough subset of them about their online/mobile purchasing experience they would tell you much is to be desired.  I often wonder why we need to plug in the same damn information (name, phone number, card number, email address, physical address, phone number, billing address, first born, mothers maiden name, etc.) again, again, and again, again and again… and again, just to buy something on a website with Facebook connect sitting right there!?  I bet Facebook already knows that information about me…

This “revelation” is not lost on Facebook and they have already been dabbling in the digital payment experience over the last few years.  But something seems amiss.  Recently stated quarterly numbers show payments flattening due to people rapidly shifting to using the site from mobile alone, or at least spending a lot more of their time on mobile than desktop where it shows more ads.  Ah, there’s that damn mobile device again!

So with the Zyngapocalypse upon us, most are wondering what comes next.  My view focuses on tying a mobile experience into our consumer experiences, namely real world payments and transactions.  It all comes back to consumer ID and expediting the payment experience.  Yes, I am talking about the same trillion-dollar market Square, PayPal, LevelUp and many others including my company Seconds are aiming to re-create.  Using the device we carry with us all hours of the day – the very same device we are always logged in as a Facebook user – these emerging business are actually adding value by solving a problem and making life more efficient.  More importantly, they figured out a way to make money while not annoying us!

Donations and Giving
A mobile payment doesn’t just mean buying a latte with my phone.  Donations, giving and social gifting are another potential home run for Facebook payments, since these are transactions people want to talk about and share with friends.  Donations are unique in the fact that the desired outcome is to influence others to join us and make a similar purchase.

So how big is this opportunity? Charitable giving is a $300 billion market, and Facebook would be wise to understand greater than 2/3 of that total – more than $200 billion per year – was given by individuals or household donors.  In fact, gifts from individuals represented 73 percent of all contributed dollars.  Wouldn’t it be great if we had a quick and easy account from which to give to our favorite charity without having to plug in those damn credit card numbers or be required to mail a check that we don’t have, (kinda like a pay button?)

It will be interesting to see what they do with Karma, the social gifting business they purchased the day of their IPO.  Social gifting and quick mobile based donations present a very promising opportunity and the Karma acquisition could be a beachhead to the milestones Peter Volgel predicted, where Facebook’s revenue from payments will double every year for the next five years.

Social Commerce
Finally, a low hanging fruit example for Facebook is the often propagated but yet to be commercialized social commerce concept.  If you think about it, it seems as if we are still in the stone age of social commerce, and have been for years now.  Facebook has been around for almost a decade and before that we had Friendster and Myspace.  What most don’t realize is how close we actually are to merging social and commercial actions, by simply talking about products and purchases with our friends.

How many times have you read a Facebook update from a friend, for instance, saying something like “I just saw ____ and it was the best movie I’ve ever seen.  Or what about the posts that show off a new car or recently purchased clothing?  Those posts, in a small way, are the beginnings of social commerce.

I discovered one startup in particular, Note Social, seeming to be gravitating towards all the ideas of value I bring forth above and from the looks of it they are just about to launch their solution.

Social commerce will usher in a totally new shopping experience, by sharing things such as a new purchase or a cool new movie you are influencing your friends’ commercial interests, which can quickly turn into another purchase.

Commerce taking place on and off Facebook, utilizing the social graph they built over the last 8 years, could be another huge business for them.  Imagine if they charged a 20 or 30% fee on any purchases within the platform?  With a half a billion daily people interacting on the site each day, that’s quite a bit of potential revenue just from social commerce relationships.

So Facebook and General Zuckerberg now stand at a crossroads.  Looking left, they hang onto advertising and hope people can deal with more unwanted interruptions on a smaller screen, leading to Facebook’s demise.  Looking right, they peer down a road full of potentially new and innovative social commerce businesses, ones which actually add value to users and possibly a brighter future.

It’s your move General.

$99,970,000,000 is The Difference Between These 3 Decisions

If MySpace would have just copied Facebook, it would have been FacebookSean Parker

That was Sean Parker’s answer to the question “what happened to MySpace?”  in a recent interview with Jimmy Fallon.  This got me thinking and was the needle prick I needed to start on a topic I have wanted to write about for some time.

If you can remember at one time MySpace was the social networking behemoth, holding the crown as the largest site on the web.  “Do you have a MySpace?” was the proverbial question between twenty-somethings.   They had over a hundred  million users worldwide, were driving revenue in the hundreds of millions of dollars and it looked as though we had an MTV 2.0 on our hands.  They made headlines with the acceptance of a $580 million acquisition from News Corp, validating Social Networking as a ligament startup business venture.   Little did we know they would turn out to be a joke, an afterthought on the web and a huge lesson to any young founder looking to build the next big company.

At right is a snapshot of the monthly unique users from earlier this year (courtesy of Techcrunch). As you can see (and probably already knew) usage has continued to plummet.  MySpace is literally a ghost town at the same time Facebook has grown to the largest site in the world, officially eclipsing 700 million users on their way to an inevitable 1 billion users and will soon IPO with a valuation of more than $100 billion!  This begs the question: What happened?

My take from Parker’s statement is MySpace had such a massive lead in users, media coverage as well as total mindshare in the social networking space it was their race to loose.  Quickly incorporating the features they saw Facebook releasing could have helped them stay atop the game.  Imagine what MySpace would be worth now if all they did was manage to keep it all together and ride out this new wave of social/mobile web.  Definitely more than the rumored $30 million News Corp is looking for to get them off their books.  What a sad ending to once dominant company.  To take Parker’s statement a bit further, I argue the biggest mistake MySpace made was sell out to the suits for a mere $580 million.  Here are three key differences that add up to a $99,970,000,000 difference between Facebook and MySpace.

Lack of vision and Leadership

The biggest difference between Facebook and MySpace is an intangible I have written about it extensively before.  Just as the difference between Apple and Microsoft was found in Leadership, so too was the difference between the social networking companies Facebook and MySpace.   (Get used to me writing about vision and leadership because I believe it is the number one reason companies succeed or fail.)  MySpace was early out of the gate and sprinted the first mile but did not foresee what could possible be on the horizon.  All they knew was people wanted a page to customize as their own and maybe a place find and connect with others.  But who was leading MySpace?  To put it bluntly, MySpace had no clue what they were doing and no clue who to look towards for leadership.  MySpace was not created by a visionary such as Mark Zuckerberg, who saw something in the web most did not.  They were driving solely on dollars and revenue, and the lack of vision and focus devastated MySpace’s growth in the end.

If Facebook was only a profile page where you can connect to your friends, MySpace would have won the race.  Facebook bet (and won) on a vision of the personalized web, integrating our friends in almost everything we do in the digital world.  Zuckerberg saw not only a web of information, but a web of people and set out to connect all those people into the web.  Execution on this vision required laser focus from a passionate founder.  MySpace ran the first mile faster but lost its way.  Facebook knew the course and won the marathon.

Message to entrepreneurs:  Have the intelligence to place a visionary leader at the heart of your company and let them guide the way.

Technically Inept

Myspace proved they were technically inept, lacking any engineering vision of how the web should work.  According to a recent Bloomberg Businessweek tell-all article, the company was constantly at odds with leadership on how/what/where to innovate.  “They were having to do all technical innovations to address the various panics that are happening. Basically their development cycle turned into one of crisis management, not one of innovation.”  Bottom line, MySpace lacked the vision as well as the technical edge necessary for a web company to maintain their dominant position.

More importantly, MySpace was not created as an innovative new platform built by forward thinking engineers. They were a company who decided to copy Friendster using sub-par technology but grew because they understood how to market their brand to the general public.  Choice quote from the article: “Using .NET is like Fred Flintstone building a database,” says David Siminoff, whose company owns the dating website JDate, which struggled with a similar platform issue. “The flexibility is minimal. It is hated by the developer community.”  Why did they choose to do this?  Driven by revenue pressures they chose to skimp on technical details and focus on more ads.

On the contrary, Facebook was intended from the beginning to be a socially transformational technology built by smart engineers.  Zuck made it a point that their engineers would determine the road ahead.  They aimed to redefine the web and understood this would require major investment.   As a non-technical executive, it was still obvious to me who was stronger in  engineering talent between the two companies.  Remember how refreshingly clean a Facebook profile felt vs the craziness that was a MySpace profile.  MySpace chose to skimp on the engine and polish the chrome.  Bad mistake.

In an interesting note, most close to Zuckerberg would admit the best decision he has ever made was to bring in a much senior and more businesslike Sheryl Sandberg as the Chief Operating Officer of Facebook.  It is said she is in more direct managerial oversight than Zuck, and who would want that?  Sandberg has been credited with building out Google’s ad business, helping create a multi-billion dollar search ad business.  I credit Mark for submitting his ego and filling holes with the right people, Facebook is better off for it.  Looking at MySpace and their recent history I cannot say the same.  Holes were not filled and egos were not subdued.

Message to entrepreneurs:  Know where you are good, understand where you need to be great, and find the right people to fill the gaps.

Poor Culture Fit with News Corp

“I think any time a startup is acquired, there’s always a certain amount of culture clash.” – Chris Dewolfe, MySpace Co-founder and one time CEO.

The worst decision for the future of MySpace was to sell the company to News Corp.  (Okay, the founders and initial investors made out fine, but the future of the company pretty much was set in stone.)  Time and time again I observe or read about another startup being acquired by a larger company and I think to myself  “well, there it goes…

The blazing, crazy, edgy, partying, sometimes innovative culture of MySpace was suffocated by the bureaucracy of corporate New Corp.  Do yourself a favor and think about your startup culture currently, and then think about the culture in a Microsoft, Google, Aol, or any other large corporation.  Ask Dennis Crowley.  Ask Evan Williams.  Ask Caterina Fake.   It usually doesn’t end well when you sell your booming startup to a large corporation.  Facebook fought off takeover bid after take over bid until everyone knew they just weren’t ever going to be for sale.  That’s ballsy, but its also what has to happen if you want to see your vision come together.

Message for entrepreneurs:  If you have a long term vision for your company, don’t sell – ever!  If you want to make some quick money, sell at the top of your hype – and walk away as early as you can.  The post-acquisition company will be nothing like the pre-acquisition company.

I am tired of seeing innovative startups being gobbled up by larger corporations only to disappear off the face of the earth – this is not how innovation changes the world.  It is actually how innovation is hindered.  I understand, as a founder you are double minded building your company.  You want to make a chunk of cheddar, and  there’s nothing wrong with that.  Isn’t that what going into business is all about?  I understand… and I would want to do the same thing in your position.

But before you sign those papers I would step back and determine what you really want and if it’s the best option.  If you really need to sell, truth is you did not build the company correctly.  If you want to cash in, great.  But understand, odds are the world will no longer be changed by your innovation.  If you really feel selling is the best option, think deep and hard about the culture inside your company as well as inside the potential acquirer because the marriage is going to be tough.  And if you feel deep down in your heart your company has a great future, don’t sell out.  Just think about how News Corp and the original MySpace founders feel about this outcome right now.

Image courtesy of Flickr user UltraRob.

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