All that glitters isn’t social media gold
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There have been times over the past seven days when it seemed every major business story was pointing to exactly the same brand. A global hoax spread across social networks that falsely claimed one of the biggest online brands was about to be pulled by its disillusioned founder. Even the entertainment news was affected when the National Critics Awards in America favoured the movie The Social Network, with four major prizes on Sunday evening.
It was Facebook, Facebook, Facebook.
But among all the media hype and billion dollar figures being bandied around last week there was a solitary voice of dissension. Douglas Rushkoff may not have as high a profile now as when he emerged as one of the late 20th century’s smartest media theorists 20 years ago, but for many of us who were in long trousers way before Mark Zuckerberg was even born, Rushkoff remains a prescient critic of media trends.
It was Rushkoff who anticipated the era of cyberculture ten years before it arrived. He coined the terms “viral media” and “social currency”. He was also bang on the money in predicting the decline of first Netscape and later the newly merged AOL Time Warner. And it is Rushkoff who is now distinctly suspicious of the long-term viability of Facebook.
In an article for CNN earlier this week, he was in no mood for equivocation. He believes Facebook’s current success will be short lived. Rushkoff argues: “We are witnessing the beginning of the end of Facebook. These aren’t the symptoms of a company that is winning, but one that is cashing out.”
What can he mean? Surely Facebook is about to become one of the world’s biggest brands? That’s certainly been the message from a stream of identikit investment bankers who have appeared across the national news networks over the past week to explain Facebook’s imminent global domination.
It has, after all, become the biggest single provider of display advertising in the UK with mega-advertisers like Procter & Gamble paying millions to advertise their brands using its pages. And if the rumours are true, Facebook generated £260m in profits for 2010 and has an even rosier outlook for the year ahead. Perhaps best of all, banking behemoth Goldman Sachs is trying to find a way to allow billionaire investors to take a $1.5bn share of the company - a deal that values Facebook at $50bn.
Don’t just count the money, follow it to the source. Businesses run on customers, not sales
So where is Rushkoff coming from? Let’s ignore the enthusiasm of Goldman Sachs to encourage its clients to invest billions of dollars in Facebook. Goldman is a brand that long ago sold its soul, its client based integrity and its once sacred 14 principles in order to make as much money as possible. That, at least, was the conclusion of the US government last year when it fined Goldman $0.5bn for selling collateralised debt obligations (CDOs) to its clients during the credit crisis while simultaneously shorting the very same investments for its own profit.
Goldman’s investment vehicle and its $50bn valuation of the brand should not be deemed as evidence of Facebook’s long-term prospects, but rather the bank’s short-term interest in making money irrespective of the investment in question.
But surely there is still no denying Facebook’s long-term business potential? It is here where Rushkoff differs from the bankers and investment analysts. The latter simply count money, but Rushkoff looks to the place where the revenues originate. Don’t just count the money, follow it to the source. Businesses run on customers, not sales. And Rushkoff believes that Facebook is building its business from a fundamentally unsustainable base.
It’s not that MySpace lost and Facebook won
Social media, as Rushkoff sees it, is just as temporary and fleeting as a nightclub or a party. At some point the movers and shakers are going to do just that and when they do everyone else eventually follows.
And the frightening speed with which the likes of Friendster and MySpace lost their lustre illustrates the paradox of making a long-term investment in any social media brand. The scare over the weekend that Facebook was going to close itself down in March, and the thousands of stories and tweets that erupted as a result, illustrate just how mercurial and transitory social media brands actually are.
Marketing Week, like every major media outlet, praised the savvy acquisition of MySpace by News International for £375m. Half a decade on the deal looks not only mistaken, but utterly devoid of any value whatsoever. And Facebook may be next. “It’s not that MySpace lost and Facebook won,” according to Rushkoff. “It’s that MySpace won first, and Facebook won next. They’ll go down in the same order.”
Who knows what we will be saying about Facebook five years from now. But if I had to believe anyone, my money wouldn’t be with Goldman Sachs. It would be on the media theorist who, so far, has an uncomfortable tendency of proving to be right.
Mark Ritson is an associate professor of marketing, an award winning columnist, and a consultant to some of the world’s biggest brands
Readers' comments (7)
Peter Lewis | Thu, 13 Jan 2011 0:03 am
Mark, I love your articles but this is the first I have ever read where I feel you are misguided. Such is the size of Facebook, and its monopoly in social media, that I feel it has removed any possibility for a competitor to establish itself. Two of the largest brands in the world in Microsoft and Google have tried and failed rather embarasingly. The fact is that social media sector won't now follow the simple principle of influencers and followers. Even if the influeners leave, it would take an almighty stroke for everyone else to leave and it would require a solitary product for everyone to move to (and i doubt whether Facebook would allow such a product to grow).
Sucking eggs but obviously Facebook works on the key principle that all your friends have a page also and you can communicate with them individually or simultaneously. if a few of your friends leave, you'll still have hundreds of others to keep you coming back to use the site to communicate with them. Ignore all the marketing and investment focuses of late and don't forget why consumers are there for in the first place. Facebook won't.
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Adam Joseph | Thu, 13 Jan 2011 4:42 am
I've seen the future.
Five years from now, in an unprecedented move, facebook and wikileaks merge ...
facebook makes a dubious fortune through extortion, charging fb users a fee to protect all their private data from being leaked
wikileaks picks up all the non-payers and starts drip feeding anything juicy to fb users spouses, employers, relatives, police etc
Broker says Buy at $25.78 and Hold :-)
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Anonymous | Thu, 13 Jan 2011 8:37 am
As a brand, what has FB ever offered? High awareness, little equity. It's even reduced the term 'friend' to a worthless tag. FB is a telco with pix. These media have to find a way to add value to people's lives that is unique. In the last week, my Gen Z daughter has twice declared FB 'boring' and deactivated. A sure sign of its inevitable demise
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Blendergasket | Thu, 13 Jan 2011 6:25 pm
I think one problem with Facebook is that a list of "friends" suffers from a weird kind of entropy over time. You start out with a group of actual friends, then it grows and grows and grows until there are tons of people who you don't want to share everything with or don't even know but for some reason or another can't/don't want to get rid of.
Also the stream of info you get from all these people is extremely broad and the useful/desirable stuff is diluted within it. My boss isn't necessarily my friend, neither is my ex, or the "coolest guy ever" who I met at a bar 2 weeks ago and added to Facebook.
Facebook is about growing networks, but there's a point where these networks become meaningless.
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Russ | Sat, 15 Jan 2011 7:57 am
If you read a few of his articles then you will see he had a social media chip on his shoulder. No one doubts his past achievements, accolades and awards and all respect due. However I fear Mr Ritson is taking the path of many before him throughout history of generational ignorance, mostly based on misunderstanding and fear.
I do not have enough space to address the all the flaws in his argument, but I can't help feeling when I read his writing on Social Media that I'm listening to a person talking about an ex lover who has hurt them.
My biggest issue with his writing on the subject is that he assumes his audience is stupid and anything social media we embrace like lemmings.
Perhaps if he assumed a little more intelligence of the pioneers and took a more humble stance about his own limitations, then we would get more balanced and less loaded comment on the subject.
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Kat | Tue, 18 Jan 2011 12:01 pm
After seeing the rise and fall of numerous web 2.0/social media efforts since I first got online back in the 90s I've no doubt Facebook has maybe 5 years at the most before it goes the way of myspace and Friends Reunited, it's the nature of the web.
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Philip Lynch | Tue, 25 Jan 2011 5:44 pm
inherent unpredictability of social media - maybe we should view facebook, myspace etc as just the first planets to form in an otherwise chaotic universe. Others will come along in time. Even if we do not know what they will look like, we know they will appear. It is just a matter of 'when' not 'if'.
I'll stop the astrological symbolism there and make a couple of business points.
First, the fate of myspace, friends reunited etc can be attributed to their basic adherence to standard commercial theory. In essence, they had a good idea and started to develop. In both cases, the end goal was to establish a proven model which would attract advertisers and investment. In both cases, these sites moved from an innovative (but loss-making) development phase, to a stable commercial operation which in the short term at least made some money. But critically they eased up on the innovation. Innovation costs money, and once myspace et al had moved to a commercial model where such things as cost controls and operating margin become important, their ability to attract and retain public attention waned.
So the theory is that facebook will inevitably follow the same path. But what happens if facebook decides not to play ball and adopts a more radical future? One which does not rely on meeting short-term financial goals, and instead continues to build a future based on new ideas and new concepts of how the internet can be used?
here's a thought - what would happen if facebook effectively 'debranded' and positioned itself not as a big blue planet within the universe, but melted into the background to become the universe itself - allowing other service providers, search engines, community networks etc to thrive within its realm?
facebook could fail, or facebook could surprise us all.
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