If you read to the end of this interesting article, you see this comment on pg of YC (and HN):
"In an e-mail sent to founders last month, Paul Graham, the co-founder of Y Combinator, an influential start-up incubator, warned of possible headwinds. But Friday he said in effect not to worry — at least not yet.
"'It’s too early to notice any effect on valuations,' Mr. Graham said. 'Personally though, I have a lot of confidence in Facebook. I expect this is just a random fluctuation.'"
My prediction about Facebook is "Facebook will go the way of AOL, still being a factor in the industry years from now, but also serving as an example of a company that could never monetize up to the level of the hype surrounding it." I could be wrong, but that's my sense of where Facebook is in the market. Of course pg has a much better track record than I have in making investments, and my prediction is not wholly inconsistent with some near-term upside in Facebook's share price.
I don't understand why Facebook can't deliever targeted ads similar to how AdSense works. They already control the "comment boxes" of the web. So essentially, they know you are logged in at such and such site. Why not target the ads of the site to you? Seems like they would print money.
Facebook's users online intent is different from Google's users. People do not go to Facebook to show buying intent, they go their to pass time. On the contrary people search Google with an intention to buy hence Google can print money but Facebook cannot.
Obviously Facebook can't match the search-intent targeting of AdWords. But grandparent post mentioned AdSense - contextual ads on other sites. Facebook is amassing the data and sensors to compete there... it's just a smaller and lower-margin business than AdWords.
The A-Number-One thing Facebook needs to do in order to improve their ad business is to increase the use of the "like" buttons, both on and off their site. While not Intent-To-Purchase, it is very much Interest, and from what I've seen in an anecdotal sense it's what makes their ads target well or not.
If I were in charge of their ad department, I'd be focused extremely tightly on increasing that behavior in users.
If I were in charge of their revenue in general, however, I'd be focused on Facebook Credits and how to become the top trusted marketplace for person-to-person transactions worldwide.
I think the situation for facebook is worse than that, actually. I think they will get disrupted and lose their userbase before they have a chance to monetize it to the degree that investors are expecting.
I think it has a chance of going both ways, what both you an TokenAdult were saying, depending on how they execute.
That said, there isn't any viable replacement out there yet, not even one that's at the very beginning stage with only a couple thousand users. My thinking is that even if Facebook executes mediocrely from here on out, Zuck is at least smart enough to keep the whole thing afloat until something else comes along that's seriously disruptive.
That's going to happen, but it just hasn't yet. You have to keep in mind that the thing that replaces Facebook isn't going to look anything like Facebook. If anything it's going to look more like Udacity, Starbucks, YouTube, etc.
> That said, there isn't any viable replacement out there yet, not even one that's at the very beginning stage with only a couple thousand users.
I would say that Google+ is probably both viable and has more than a "couple thousand of users", though right now it certainly isn't getting enough traction to threaten facebook.
But if something caused a mass exodus from Facebook, Google+ would probably benefit a lot. Either that, or some new entrant.
It's probably true that Facebook will never effectively monetize 1bn users (without charging for Facebook access) but I don't see what indication there is they'll get "disrupted" and lose everything.
If anything Facebook is in an even stronger position right now when you look at what has happened with google+. The largest internet brand (Google) can't even beat Facebook with a (supposedly) superior product and already huge control over the internet.
It's possible though that people are just losing interest in the type of experience Facebook provides. If that is the case then Google+ just arrived at the wrong time. No matter how good it is if the audience is losing interest in the whole concept it won't do well. So the relative failure of Google+ might not indicate that Facebook is in a strong position, but that rather the whole "social industry" is in a weakening position.
The launch for google+ was so upsetting and disappointing. I oh so badly wanted to tell my friends/family to join me on it, but I didn't care enough to make an account separate from my google apps account, which were restricted from google+ for quite a while. I know I'm an incredibly small fish in a big pond, but I believe a significant percentage of google apps users would have gladly evangelized for google.
Was the product itself really so disappointing, or was it more that people have just grown tired of social networking? It seems like Facebook may just be coasting on momentum and when Google+ arrived people just didn't have any motivation to sign up for yet another social network.
I think the biggest problem with google+'s launch was not the product or that people have grown tired of social networking, but the launch itself. First, they screwed up support for google apps users which is a huge mistake, that is the core of the most dedicated and tech savvy google supporters, alienating them on launch was a disaster. Second, the slow rollout through limited and controlled invitations was unhelpful for a service of that sort. If they had scaled up earlier the launch would have gone much better.
Facebook is rife for disruption, the fact that google hasn't been able to pull it off doesn't mean that it isn't possible. Few of facebook's users love facebook, they use it because that's where everyone they care about is. Almost the entire value of the site is due to network effect and a merely competent execution of the site's core features.
Google imagines that they can take away marketshare from facebook by implementing mostly the same featureset with only a few changes that only a tiny proportion of people care about (with the exception of hangouts, which so far is google+'s killer feature). But that sort of tactic only works if you can bribe 51% of the userbase over to your side in the first place. In that case then everyone else would follow, but in trying to disrupt an entrenched competitor it's going to be an uphill battle at best.
There are two ways to disrupt facebook, I think. One: on technology / featureset. Facebook has a terrible mobile app, that's an easy weakness to exploit. Google+'s hangouts are another aspect of adding features that facebook lacks. If you manage to come up with enough compelling features and qualities perhaps you can get people to switch. Two: socially. Facebook is a very one-size-fits-all system for social networking, but that's not the way social networks in the real world view themselves. For example, a site, or federation of sites, that more explicitly catered to different interests through layout, graphic design and branding, feature-choice, etc. could have a higher appeal to certain groups than facebook. A lot of facebook's appeal is because it is, or was, perceived as "cool", if other sites can change that perception then they can drain traffic away from facebook. Maybe not all of it, but if a thousand different sites each take a thousandth of FB's traffic, then what happens?
The most naive assumption is that facebook won't be disrupted. Nearly every online company is going to be disrupted in the next decade, the question is whether or not those companies can respond to it effectively and manage to survive.
I'm predicting similar. Facebook is a company that's had 8 years to learn how to monetize, despite all the obvious ways of doing it (premium upgrades, etc.) so the wise bet is that if they haven't learned to juice it by now, any more than they already have, then they never will. Is it possible they might? Yes. But that's not the smart way to bet given the facts. Apple and Google and Amazon have tons of talented folks and have shown they can monetize and diversify their products. Facebook really hasn't. The Instagram buy, especially it's magnitude, smelled like fear to me.
Who's going to disrupt them? Someone who can monetize the masses better? People are going to flock to a social network with more ads? With more fees?
I've consistently thought that people underestimate the lock-in Facebook has. They have one of the strongest, if not the strongest, network effect in the history of mankind. They can be disrupted, but only when there's some sort of major leap in technology that wholly redefines what a social network is. Adding incremental this or add-on that won't get anyone anywhere.
They can be disrupted by adding layers on top. Consider a browser extension or mobile app or whatever that aggregates social, and that proxies interactions with Facebook for you when you try to send something to someone on Facebook, but that first tries to do an end run against Facebook.
E.g. consider the abundance of "SMS apps" that sends the message as an IM over their own network if both sender and recipient are users, but that will revert to SMS otherwise. Many of them sell themselves as cheaper, but also as having more features, such a more flexibility in what you can send, instant read confirmations etc.
Now, there's plenty of chances for lawsuits and extended wars of attrition trying to block it for someone trying to do that to facebook, but I think long term they're going to be a too tempting target.
This is a good point to go into. At this point Facebook essentially needs to monetize their userbase to an extraordinary degree. That's the debt they've incurred due to the pricing of their IPO. That will likely force them to annoy their users with more ads, etc.
However, consider an upstart with nothing to prove. If they can put together a facebook competitive technology stack at a lower cost they can actually monetize less than facebook, and steal users that way. The fact that they would potentially make, say, half or a tenth as much revenue per user is irrelevant, because it would be their revenue vs. facebook's revenue.
"In an e-mail sent to founders last month, Paul Graham, the co-founder of Y Combinator, an influential start-up incubator, warned of possible headwinds. But Friday he said in effect not to worry — at least not yet.
"'It’s too early to notice any effect on valuations,' Mr. Graham said. 'Personally though, I have a lot of confidence in Facebook. I expect this is just a random fluctuation.'"
My prediction about Facebook is "Facebook will go the way of AOL, still being a factor in the industry years from now, but also serving as an example of a company that could never monetize up to the level of the hype surrounding it." I could be wrong, but that's my sense of where Facebook is in the market. Of course pg has a much better track record than I have in making investments, and my prediction is not wholly inconsistent with some near-term upside in Facebook's share price.