The Inevitability of Facebook, and other Fairy Tales

I don't believe in the "inevitability" of Facebook or Jack in the BeanStalk, although they're both great stories. To me Facebook is simply AOL circa 1998 dressed up in new Web 2.0 clothes. Don't get me wrong, I do think they'll end up being a very profitable company - just not as profitable and all-encompassing as many believe. Here's why....

What's happening now is the money-making limitations of being a Social Graph hub are being exposed, and Facebook has been forced to bastardize it's privacy policy and perform emergency business model surgery because of it. The hockey stick expectations of Facebook's future revenues need to be adjusted to reflect these limitations. In fact, if it were possible to arb Twitter against Facebook (Long Twitter at $1.5B and Short Facebook at $15B) I would do it immediately. Long 10 units of Twitter against short 1 unit of Facebook at current valuations to make $15B against $15B. It's the ultimate bet that the Interest Graph oriented platform monetizes better than the Social Graph oriented platform over the long term - and that Twitter's management is superior to that of Facebook's.

And therein lies the irony of Personal Graph monetization (I'm defining the Personal Graph as the combination of one's Social and Interest Graphs): People wont pay to communicate with people they already know, but they will pay (in one form or another) to connect and interact with people and content they're interested in but not currently unaware of, or are hard to find. You see, Facebook's decision to initially orient around a user's social graph is what will ultimately constrain it's ability to monetize at scale. At a certain point your symmetric "friends and family" Social Graph constrains your expression and exploration in a way that asymmetric, distributed Interest Graphs do not.

With that as a backdrop I wanted to pass along Loren Feldman's post on his decision to quit Facebook. I know a lot of people feel like Loren does - that Facebook is redundant and/or of little use outside of  keeping in touch with friends and relatives. BTW, there's nothing wrong with keeping in touch. It just doesn't make Facebook the $100 billion dollar company that many predict it will inevitably be.

Anyway, I'll have much more to say on this going forward. For now, here's Loren's post:

1938 Media / Report #17

I Quit Facebook

So I quit Facebook. I did it for a few reasons. None of them particularly "heavy".  I spoke about them on my site. I'll explain a little more here.

I never used it. I really never did. It was just too much. I have time to spit out bullshit to twitter in between other shit. It's easier.

It was impossible to figure out how to use whenever I did try and use it. Simply the worst interface ever. All the different fucking settings and walls and pages and profiles. Is it all cross posting? What's the difference with all this shit anyway? It was impossible to figure out.

I don't trust them. It's well documented how umm maybe less than honorable with people's data and privacy Mark Zuckerberg really is. Do a quick search on the matter if you are unfamiliar. His sister Randi is Julia Allison's best friend, need I say more?

It's not going to hurt my business one bit. It's not. I'm bigger than Facebook. I don't mean that arrogantly I'm just saying that I think my brand is established and I have a really cool site that I control. It's where my AUDIENCE and COMMUNITY is. I am Loren Feldman of I am not
So that's basically it. No big deal really. What is a big deal though is this newsletter. I've been enjoying writing lately and I'm going to do more of it here. 
As always thanks for the support.
Best Regards,

Hey Facebook, Exactly WTF Is Going On Here?

Welcome to Facebook 2.0 - The Web Site That Knows What's Best For You!

Yes, this is a rant.

Last Friday night Facebook tried to sneak by some important changes to their Privacy Policy and related notifications hoping no one would notice. TechCrunch summed up the changes and their implications nicely with the headline:  "Facebook’s Plan To Automatically Share Your Data With Sites You Never Signed Up For"

Fortunately ReadWriteWeb, The ACLU of Northern California, and others also came forward quickly to highlight these changes, their potential ramifications and the manner in which the news was (or was not) disseminated. BTW, if you want notifications on any of the new privacy policy changes that Facebook will inevitably be shoving down your throat in the future, you now have to "Become a Fan" of the Facebook Site Governance Page.

OH, WAIT A MINUTE - BEFORE YOU HIT THAT "BECOME A FAN" BUTTON..... Monday afternoon an email obtained from MediaMemo announced that Facebook is going to be changing the "Become A Fan" button to the "Like" button. Facebook tells advertisers:

As part of a larger effort to improve user experience, increase engagement and promote consistency across Facebook, users will soon be able to connect with your Page by clicking “Like” rather than “Become a Fan.”

“Like” offers a light-weight, consistent way for users to connect with the things they are passionate about. This lighter-weight action for connecting to a Page on Facebook means that users will be making more connections across the site, including your Facebook Page.

The core functionality of Pages remains unchanged. For instance, your Page will still have distribution into News Feed. The purpose of this change is to maintain Pages’ powerful communication channels, while making it easier for users to connect with Pages.

This is my favorite - "“Like” offers a light-weight, consistent way for users to connect ....". Yeah, because the "Become a Fan" button is SO heavy and inconsistent. Honestly, I don't know how much more insultingly condescending they could be. It's as though they believe we're going to simply swallow this nonsense whole and without question. But wait, the Facebook hit parade just keeps marching on.

AllFacebook then goes on to highlight that "One of the major drivers of the verb changes is that “Like” performs much better than “Become A Fan”. No sh*t Sherlock! That's because when you click "Like" anywhere else on the web you're not blindly opting-in to a marketer's feed. Users will think they're simply gesturing approval for some piece of content or brand, when in actuality they're unknowingly becoming "Fans" and (according to Mashable) will begin receiving updates from the brand in their News Feeds. So there you have it; In another calculated yet comically transparent manuever, Facebook is going to attempt to redefine the word "like" and devalue a recognizable Internet convention that users know and are comfortable with in order that they can juice the number of ad pages served. Brilliant!

Seriously, "As part of a larger effort to improve user experience...."? Do you think for one nanosecond that we're buying what you're selling? Let me rewrite that first sentence to reflect what I'm fairly certain you're actually trying to achieve with all of this, "As part of a larger effort to increase our revenues as rapidly as possible, we'll be sharing both your and your social graph's info with as many marketers as we can and will be exposing your data to as much search engine indexing as possible, with or without your permission. We'll also be creating an incomprehensible maze of settings that you must learn how to reconfigure in order to re-establish the privacy that we promised you in the first place. Welcome to Facebook 2.0 - The Web Site That Knows What's Best For You! ".

As I said the other day, "Facebook is looking more & more like a giant consumer harvesting machine optimized for marketers". But does anybody care? I think Kid Mercury put it best in his comment on ReadWriteWeb:

"When are people going to wake up and stop using Facebook? That's what I find so frustrating. We hold all the cards. Facebook started as being pro-privacy, and because that's a poor business model for a mass social network, they've had to sell out. Seriously lame, but not as lame as the users who put up with it."

Let me be clear, I am 100% in favor of Facebook exploring (and finding) innovative ways to monetize their platform. But to continually and consistently debase their privacy policies while insulting the intelligience of their users is almost incomprehensible. Smart users are going to lock down their accounts or leave altogether, and the only users left to monetize will be the ones that marketers aren't even interested in reaching. What is Facebook going to do then?

As I mentioned previously: "The pressure to perform financially in advance of their widely expected IPO is increasing, and it's starting to show in both Facebook's words and actions. And none of it is good news for Facebook users." Because of those pressures they're now forced to sacrifice their original vision to the gods and pray for short-term financial results.

Let's hope they can pull their head's out and make things right. Unfortunately I'm not optimistic. As Jason Calacanis says in his post of December 13th, 2009:

"...the fact remains they screw up on important issues almost as if it’s a “best practice” to do so."

At the same time, Chris Sacca had this to say on Twitter:

"Each time Facebook makes an ugly privacy move, it not only betrays users, but the rest of the Valley has a field day recruiting engineers."

So for now I'm anxiously awaiting a mea culpa, but I'm not holding my breath.


Here's the memo that Facebook is circulating to it's marketing partners:

Dear Facebook; Our Relationship With You Is Not A Given.

At The Crunchies Friday night I was only mildly interested in what Mark Zuckerberg had to say until he stated rather matter-of-factly that Facebook's privacy policy was changed because "People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people. That social norm is just something that has evolved over time. We view it as our role in the system to constantly be innovating and be updating what our system is to reflect what the current social norms are." I couldn't believe my ears. This is clearly the Facebook company line that from this point forward will be parroted to all who will listen to justify their dramatic reversal in corporate philosophy relative to user privacy.

Marshall Kirkpatrick at ReadWriteWeb wrote a great piece yesterday highlighting Mark's statements at The Crunchies and says quite credibly; "That's Not a Believable Explanation .... I don't buy Zuckerberg's argument that Facebook is now only reflecting the changes that society is undergoing. I think Facebook itself is a major agent of social change and by acting otherwise Zuckerberg is being arrogant and condescending."

Facebook is changing it's policy for one reason only: They've concluded the only way to monetize their user base in numbers that will be acceptable to their current, and more importantly, future IPO investors is to expose as much user activity to data mining and advertising (search, display, & PPA) as possible. Period. And by the way, we know you need to make money, and we're cool with that. Some of us are willing to pay a subscription fee if necessary to quarantine ourselves from most of that, and the rest of us would be willing to be bombarded with whatever targeted ads you want to throw at us. But don't piss on us and tell us it's raining. We can see through this "we're only doing this because that's what you want" charade, which is both disingenuous and poorly executed.

Yes, Facebook has a millions of users. And No, many will not leave. But without some meaningful attitude adjustment Facebook risks the real possibility that users will reduce their on-site activity to levels that will render them nearly impossible to monetize. As I mentioned in my previous post, there is already ample evidence to suggest that both new user growth and existing user activity have slowed over the past six months. The pressure to perform financially in advance of their widely expected IPO is increasing, and it's starting to show in both Facebook's words and actions. And none of it is good news for Facebook users.

It's sad the way Facebook has compromised the privacy principles they trumpeted in their earlier days. And they can say whatever they want, but the fact is that they're not "reflecting current social norms". Yes, we are becoming more comfortable exposing certain parts of our lives online. For example, we're more comfortable sharing things on Twitter because we know the rules upfront - you post, it's public. But Facebook promised us a certain level of privacy, that's the social contract that we signed. We shouldn't have to run through an incomprehensible maze to re-establish the privacy we were promised in the first place.

So stop insulting our intelligence by telling us that you're only giving us what we want. It's NOT what we want, but we know it's what you desperately need. So how about a little respect? Because our continued relationship with you is not a given.

Facebook's Fail Tale

Jason Calacanis posted a good piece yesterday on Facebook's recent privacy snafu (Is Facebook unethical, clueless or unlucky?). I'll begin with a few of my favorite excerpts:

"Facebook proved again this week that they are either the most unethical or clueless internet company in the world."

".. they screw up on important issues almost as if it's a "best practice" to do so".

"So why is Facebook trying to trick their users? Simple: search results. Facebook is trying to dupe hundreds of millions of users they’ve spent years attracting into exposing their data for Facebook’s personal gain: pageviews. Yes, Facebook is tricking us into exposing all our items so that those personal items get indexed in search engines–including Facebook’s–in order to drive more traffic to Facebook."

And Chris Sacca had this to say on Twitter: "Each time Facebook makes an ugly privacy move, it not only betrays users, but the rest of the Valley has a field day recruiting engineers." That viewpoint was driven home later that night in Palo Alto when two former Facebook engineers told me that several more engineers are leaving Facebook. The reason? They're losing confidence in Zuckerberg. And most importantly for them, at the rate things are going they don't think their options are going to be worth much if anything by the time the company does it's IPO. Best to get out now while the gettin's good.

The pressures to increase revenues prior to filing an IPO are intense and the only way that Facebook knows how to do that is to put the pedal to the metal with ads, directly or through search. But the execution of this latest "reverse privacy" strategy through brut force has backfired, and their attempts to reactivate dormant user accounts by prominently suggesting that users "reconnect" with these dormant users hasn't fared much better. Face it, both new user growth and existing user activity have slowed over the past six months. In the face of this they're forced to increase revenue in preparation for an IPO sometime in 2010. They're in an operational vise and they don't have many levers left to pull.

The cumulative effect of a year's worth of continual management missteps is reaching critical mass. If Facebook engineers are losing faith, then potential IPO investors aren't going to be far behind. So unless Mark can right his ship within the next couple quarters I think the chances of him retaining his title as CEO as the company prepares to go public are somewhere between slim and none. Facebook is on a very slippery slope at the moment. It's time to bring in some experienced leadership at the top.