iOS app Android app More

Peter Schwartz

Peter Schwartz

Posted: December 9, 2008 01:12 AM

Facebook's Face Plant: The Poverty of Social Networks and the Death of Web 2.0


It is safe now to say that "Web 2.0" is dead. The evidence is irrefutable and it exposes the twin fallacies the concept of Web 2.0 has depended upon: 1) that people can build their worlds around - indeed, will want to build their worlds around - social networking; and 2) that social networking offers a viable, massively scalable business model.

Let's begin with Facebook, the most popular social networking website in the world. With more than 120 million members, and 60 billion monthly page views, the website is expanding at a white-hot rate. At any given time, students are facebooking each other around the world - in more than 30 languages (with user-created translated editions of the site) - thousands of time per second. While not yet profitable, Facebook has achieved in only four years the signifier of a premium brand - it is now a verb.

A recipient of almost $350 million in equity funding (and another $240 million in debt funding), Facebook charmed the technocracy in 2007 when Microsoft purchased a 1.6 percent stake for $246 million, valuing the company at more than $15 billion. Now, as we close the books on 2008, one might wonder if Facebook is actually worth anything.

The company has grown rapidly by any measure, with estimated 2008 revenues of nearly $300 million. From zero to $300 million in four years is nothing to sneeze at. But the company is burning through cash much more quickly than it can replenish its coffers. Its electricity, bandwidth, data storage, and personnel costs are immense. The company needs to buy 50,000 servers alone in 2008 and 2009 to manage its traffic and storage needs.

At the same time, the economy - and advertising rates for banner ads - have fallen off a cliff. Facebook has grown overly dependent on international growth - with 3 out of 4 users from outside the United States. Foreign use is expensive to support and generates little revenue. And so the rumor mill churns with stories of the company's financial quandary. Will Facebook run out of cash? Has it grown too large for US corporations, private equity funds, and venture funds to finance? Can it go public? Why is Facebook CFO Gideon Yu in Dubai? Is a sovereign wealth fund the only cash option for Facebook at this point? Is Facebook itself staring into the gun barrel of the largest financing down-round in history?

Facebook's problem is not simply that it cannot grow revenues rapidly enough. Facebook confronts the challenge that aggrieves any social network creating a virtual reality for building and sustaining human relationships. That challenge is Burnout, the acrid smell of neurons frying, and eventually a longing to return to the wholeness of the physical world.

Some examples. My 17-year old son uses Facebook 2-3 hours a day, switching back and forth between FB, ESPN, YouTube, Gmail, Google Docs, and iTunes with the smooth, liquid lightning of a boy who has manipulated game controllers for more than a decade. He loves Facebook. He depends on it for a vast amount of communication, self-expression, entertainment, and bonding with his peers. But I asked him if he would be willing to pay any amount of money for an annual subscription to Facebook. He paused, and then finally said, "I dunno. Maybe $50. Max."

Kids are turning off to Facebook. Two of my son's friends have deactivated their accounts. They realized that they had too many "friends" whom they did not actually know. They found themselves clicking aimlessly from page to page for too many hours at a time. They got bored. They missed books and movies and the peaceful white space in their lives that Facebook (not to mention MySpace) is so bent on filling in with user-generated "content".

They grew up.

And one day, my son will, too. As Facebook has percolated down to kids in high school (and now even to middle school) and bubbled up to parents who are now themselves "friends" with the friends of their children and spread to every corner of the globe, it has become less exclusive, less interesting, more overwhelming, and ultimately more annoying.

The problem with Facebook is that it feeds on trivia, and in the process has become trivial itself.

What, in the end, will people pay for trivia? Very little. At my behest, my son polled his friends and asked them what they would pay for an annual subscription to Facebook. He asked 9 boys and 6 girls. Remember, these are high school juniors and seniors, the sweet spot of the Facebook market. In this sample, 5 kids said they would not pay anything. Another 6 said they would not pay more than a dollar a month. The most anyone would say Facebook was worth to them was $50 annually. Wanting, as always, to fit in, my son reduced his own payment limit to $25 as he reported these results.

This creates a major problem for Facebook, and for other Web 2.0 social networks. The problem is commitment. Facebook has created loyalty without value, quantity that drowns quality. Who can say that MySpace or adult versions of Facebook such as Linked In are any different?

During the election, the addictive and massively popular political site, Pollster.com, disabled its comments feature. Mark Blumenthal simply could no longer accept the assault of abusive, insulting, and profane comments of anonymous posters to the website. And this is the problem with Web 2.0. There is no filter for quality. Websites built around or dependent upon user-generated content all too often resemble online versions of talk radio.

Web 2.0 will die. The universal social networks that are its public face cannot survive because they cannot propagate a sustainable user base willing to pay for its services. Remember America Online? Netscape killed it (and so AOL killed Netscape). Facebook is nothing more than a new version of America Online, with lots of calories but not much nutrition.

If Web 2.0 dies, it will nonetheless leave a remarkable legacy. Social information and knowledge sharing technologies such as those one finds on Wikipedia, Amazon, Flickr, and even the New York Times website are incredibly efficient ways to harvest useful opinion and knowledge. Product reviews on Amazon pool valuable user experiences with specific products (although typically not with books, where Amazon book reviews can suffer from the same oversaturation as Facebook - consider this reflection on the mixed reception from Amazon readers of Jonthan Franzen's best-selling literary novel, The Corrections).

Flickr lets anyone travel the world while sitting in bed with a laptop computer (want to see 666,000 photos of Iceland?). And Manhola Dargis's November 21 review of the creepily chaste vampire movie, Twilight, elicited more than 1,000 reader responses when she solicited their opinions about the scariest movie of all time.

The lesson is clear. Social information and communication requires targeted aim, meaningful purpose, and self-correcting standards of quality. Universal social networks such as Facebook, almost by definition, cannot maintain this focus. For this reason, they cannot survive in their current form.