A few weeks ago I had the chance to sit down with the CEO of a mobile operator. This is a multi-billion dollar company with over 1000 employees, a lot of customers and international influence. I was introduced as an “Internet guy” so the first question the CEO asked me was “so what do you think about the crazy valuation of Facebook?”. As I pondered the question he answered it himself “I don’t see how they a ever going to make money”.
This wasn’t a dumb person. In fact, this was probably one of the smartest guys I’ve ever met. Still, his remark was very disappointing to me. Disappointing because it lacks creativity or even the will to think beyond the obvious. I couldn’t resist and told him “you are a pretty smart guy. Are you going to tell me that if I put you in charge of 500 million loyal customers you wouldn’t know how to make money off of them?”
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The challenge for Facebook, or Twitter or any other company with a lot of users, isn’t whether they can make money. They all can. In fact, Facebook did a rumoured 800 million in revenue in 2009 and announced they broke even. This year, the company will reportedly cross the 1 billion mark. Generating money is not the problem when you are the #1 website in the world, as facebook currently is.
The real challenge is relevance.
How do you stay relevant with 500 million or 1 billion members? How do you make sure you don’t turn into the next ICQ, Orkut or Myspace? Finding the answer to relevance is a lot harder than answering the ‘money’ question. And I can guarantee you that this is what keeps people at those companies awake at night. Is that unreasonable? Do you think that nothing can destroy the growth of facebook?
Unfortunately history has proven that people are extremely fashion cautious, unloyal and eager to move on to the next best thing. I remember when Friendster grew to 10 million members overnight and friends of mine announced they were starting their own social network. “suckers!” is what I thought. I reasoned that with 10 million members nobody would ever catch up to Friendster. They had what investors call, and love, the “first mover advantage”. Well, we all remember what happened to friendster. (my friends turned their social network into a thriving and very profitable business and the only local network that beats Facebook in their market)
Then history repeated itself with MySpace; Untouchable, growing exponentially and eventually backed my Newscorp they seemed like the next, well, Facebook.
And now we are all stuck at Facebook. Us, our friends, our family and every old friend you hoped to forget and never see again. Is facebook unstoppable? Of course not.
Let’s imagine that in a month or so a new network arrises. Maybe it will be started by two guys in a garage, or by Google, or by Apple. It really doesn’t matter who will start it. What matters is that it will be cooler than Facebook. You won’t find out about it until the three people around you who are cooler than you start inviting you. You will check it out, not understand the interface at first, but you will see that something cool is going on. Also, your mother won’t be there. Just the cool people.
So you cautiously switch. After a week or two you find out that you are spending more and more time on the new thing. So you invite your friends. Heck, you connect to facebook and Gmail and invite ALL your contacts. Within a month or two they all switch over too.
Sure, the kids will stay behind, and so will the elders. But the cool majority will have no problem with switching to where the cool kids hang out. It doesn’t matter how cool that bar is where everybody hangs out. If your friends move to the new hot bar next door, you will follow.
Suddenly all that revenue, all those status updates and all those connections are worthless. Facebook will have lost it’s relevance in an ever changing world and they will never get it back.
Will that happen? It might not. But the chances of it happening are a lot higher than facebook not finding a way to make money.
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