June 14, 2012

Brands: How to cut your exposure to Facebook business risk

Will Facebook stick to its core competency or be waylaid?

This is third of a three-part series on Facebook as an investment. Also see:
Facebook’s biggest barrier to enormous wealth? Trust
Facebook will remain king, but social pure plays will fade

Christopher RollysonMany brands are boosting their investments in social business platforms like Facebook, Twitter, YouTube and Pinterest with every passing quarter, but CMOs are too often focused on next quarter’s numbers. They fail to insulate themselves against platforms’ business risks. Facebook’s IPO will likely cause the company to change its behavior in surprising ways, and without warning, by changing its policies and features. Here, I’ll address how brand executives can insulate themselves from Facebook’s — or any platform’s — fortunes by moving to make their relationships and networks portable.

Seeing beyond the platform

Pure play firms like Facebook, LinkedIn and Twitter have defined language, behavior, features and the very concepts of digital “social networks,” but they are quite expendable when brands manage their investments appropriately. However, brand leaders need to follow the digital ecosystem closely and be ready to adjust quickly.

Here are some principles for avoiding surprises. Specific action steps follow.

Assume pure plays’ gradual obsolescence

Watch the ecosystem’s major players, and the interactions among them, but the trend will be specialist sites maximizing value from “social networking” and fading dominance of pure plays. The latter will continue to exist, but they will not maximize value because they are designed for “socializing” (which people can’t resist), not doing things. Moreover, I use “ecosystem” intentionally because it indicates a pervasive, real-time network that increasingly interoperates. Because it’s digital, it’s more dynamic than any human market we’ve ever experienced. Here are brief comments on some of the players:

Buying RIM won’t help Facebook enough to warrant the distraction — not even close.

Facebook is so entrenched globally that it may remain the dominant general social network for many years. However, there is a big caveat. Facebook’s management team looks like it’s losing focus due to the IPO and too much time with Wall Street bankers. It’s “using the money it raised” for M&A, purportedly considering entering the hardware market (buying RIM). If Facebook’s management team and core competencies included M&A (like, say, Cisco), I would be confident. But they don’t. If Facebook buys RIM, I would seriously question Facebook’s medium-term relevance and long-term survival. Making phones will not help Facebook sell more mobile advertising. Not even Apple’s best-in-class iPhones will likely display much advertising due to user backlash. The device wouldn’t help Facebook enough to warrant the distraction — not even close. Continue reading

June 13, 2012

Facebook will remain king, but social pure plays will fade


Facebook collage by Jennifer Daniel

Look for the rise of sites with deep social features

This is second of a three-part series on Facebook as an investment. Also see:
Facebook’s biggest barrier to enormous wealth? Trust
Brands: How to cut your exposure to Facebook business risk

Christopher RollysonFacebook will remain the dominant popular social network in many markets for many years, and it won’t have to worry about being “displaced” by another social network the way that it displaced MySpace. In the near term, this lack of competition will give the company some breathing room, but a more daunting threat awaits: the waning of social network pure plays’ influence by 2017. Nonetheless, the fate of pure plays should be top of mind for serious Facebook investors: to produce the fabulous returns that current investors expect, Facebook will have to move far beyond adverts.

In part one of this series, I argued that Facebook had a significant trust gap with users that would inhibit its ability to monetize its most unique and valuable assets, and that the trust gap was recently compounded by its “IPO irregularities.” Below I’ll take a different tack and analyze the investment prospects of Facebook the platform.

Social networks’ disappointing investment results

Pure play social networks (Friendster, MySpace, Facebook, LinkedIn) have not lived up to investors’ ROI aspirations, despite the fact that people (‘users”) have loved the networks and lavished mind-boggling amounts of time on them. The Web 1.0 logic behind investor expectations held that the more time people spent on the sites, the more ads they would see and the more they would click. #fail

In retrospect, it is understandable that pure plays’ management and investors didn’t appreciate social networks’ social context. It turns out that very few people understand the intricacies of “sociality,” much less how to wire it into a value proposition or a business ROI. Continue reading