Thursday, August 2, 2012

Facebook edges closer to underwear gnome territory

Following up on

Loan Sharks, Facebook and the Growth Fetish

All Things Considered chronicles the continuing slide from innovative company with good business model to cautionary tale:
For years the vast majority of business stories about Facebook seemed to describe some kind of unstoppable force. A company that was doubling in size every year — with members who spent more time on the network month after month, and a user base so large it rivaled the most populous nations on Earth.

And then as Facebook prepared to go public, suddenly the only thing business writers and analysts were interested in talking about was the money.

Analyst Debra Aho Williamson says Facebook's projected annual revenues are now more than $1 billion less than what she and other analysts had expected before the company went public.

"So Facebook is now in the ranks of the big companies, and essentially it'll stop innovating the way we've seen innovation before," says technology researcher Vivek Wadhwa.

Anant Sundaram, with the Tuck School of Business at Dartmouth, says, "We're talking about Facebook having to grow its revenues at between 25 and 30 percent per year."

Facebook Stories

They are among many analysts who recently have expressed their skepticism about Facebook's future as a business. Now Facebook is trying to change this narrative. The company is launching Thursday what it calls a micro-site,

It's really an online monthly magazine devoted to stories on how Facebook can be used.
The story featured is a genuinely touching story of a man who lost his memory trying to rediscover his past on Facebook. From a business standpoint, though, the micro-site is a pointless exercise, and if the executives at FB actually expect this to move the needle, the company is in even more trouble than we thought.

The problem here is one that almost every business analyst has faced. You want to convince people to do something (buy your product, not cancel their membership, spend more time on your site, whatever). These people can be put into three groups, lost causes who will never do what you want, sure things and persuadables (people who will do what you want given the right pitch or incentive). This last group is why marketing departments exist (and why marketing statisticians  like me have jobs).

FB has to meet incredibly aggressive growth targets that require both bringing in more accounts (extraordinarily difficult for a product this close to saturation) and getting more activity from many millions of low traffic users. The stories site may have a slight positive effect on brand but for the problem at hand it's so comically inadequate that it raises questions about whether the people running the company realize how much trouble they're in.

For starters, Facebook is too big and too famous to get much of a PR bump out of, well, anything. These "extraordinary stories" would be of great value to a little known business but people already know about FB and how to use it.

Second, for this to make a difference it would have to change the behaviors of at least tens of millions of persuadables, but by its nature this type of site will be most likely to attract regular/heavy Facebook users (sure things).

Finally, not every persuadable will be persuaded by every message. Watching an inspiration video might well make someone more likely to spend more time on FB but how much more likely?

If you run any kind of realistic numbers through this scenario, you won't get more than a trivial impact, and when you consider that at the end of the month, employees are probably going to start dumping their shares en masse, initiatives with trivial impact shouldn't be on anyone's schedule now.

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