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.

Comments

[sardonica formosa]

Web 2.0, or user-generated content and knowledge-sharing, has created an opportunity for renewed grassroots civic participation, consumer feedback, and the sharing of personal creativity and information. Why are you so eager to have these things "die"? Facebook and OMG! commentaries may be flooded in trivia, but it only affects you if that's where you put your attention. I would rather put mine on the many worthwhile RSS feeds from writers and thinkers whose ideas I respect. Web 2.0 about to die because Facebook is a trivial behemoth? Have you not heard that YouTube is now the second biggest search engine after Google?

Frankly, I am tired of dads with Facebook kids claiming that social networking is a passing phase. I am also in my fifth decade, but at least I can see the great potential in this phenomenon and make use of it in a sophisticated way. If you can't, then maybe go back to reading the paper on Sunday with your slippers on. The only thing that is dying are the dinosaurs.

[deckard70]

"Facebook, the most popular social networking website in the world...with more than 120 million members..."

So if they charged one dollar per year, they'd make 120 mil a year? Sounds like Web 2.0 is very much alive and well. I'd pay a dollar a year. I wouldn't pay a dollar a month, but a buck a year, sure.

That would give them more than enough profits to keep the site running and expanding.

[alisa leonard-hansen]

Continued...

They, I think, recognize that their value is not in service but in the data they house. Essentially FB is making a play to become the "Intel inside" the social Web...supplying social graph data to participating parties (note: major media companies including ABC, CBS, Disney) thus making those parties' sites all the more relevant and valuable to marketers.

i wrote a post on this for Mashable and the potential for data portability to provide a business model for Facebook: http://mashable.com/2008/11/19/facebook-marketing/. Again, yes, "Web 2.0" as we think of it now is dead...what is coming is an entirely and inherently social Web...whereby business models are based not advertising but on capitalizing consumer data. As creepy or not that might sound.

[alisa leonard-hansen]

Peter- to your point social networks can't survive their current state...lets look at what Facebook actually is: its a database. It houses more valuable data (to marketers) than the kind of data that credit bureaus like Experian house in their databases (who sell said data to marketers to the tune of $5 billion a year). The true value of these social networks are not in the platforms of "experiences" they provide (I agree, throwing sheep at people?) but rather in the data they store. Whether we like it or not, the means by which we now communicate through our various social technologies has created a whole host of new communications protocols. This is not going away, but morphing.

Case in point- the dawn of data portability. This means that users would have the ability to take or port their data (the kind of data relating to identity, one's relationships-- called 'the social graph') wherever they like on the Web. Imagine that any site you visited was an intuitive, socially contextual epxerience based on recognizing your personal preferences and relationships housed in your "social graph." This is where FB and the large social nets are going-- hence you have Facebook and MySpace both announce elementary data portability initiatives in the past few weeks (Facebook Connect and MySpace Data Availability).

[flashcat7]

What you consider to be a dying out of 2.0 technologies is proof that 3.0 is taking shape. The web is constantly evolving and improving, and as new problems arise for companies like Facebook, so too will solutions as well as new opportunities for growth.

Growing pains, perhaps. Dying out? Definitely not.

[funwithwarcrimes]

$25/year x 120,000,000 users = 3 billion dollars
$10/year x 120,000,000 users = 1.2 billion dollars
You're right. Not a huge amount, but I'd take it if were my business.

[hey0there]

people get married, and usually one of the parties involves will have that view of 'my spouse must be cheating if they are online at myspace/fa­cebook'... i know many women who think like this.

i wonder how common that is.

[dougbob]

the advertising model hasn't evolved yet for facebook. it's usefulness in breaking down alienation and building community means that it will have a place in the future.

[DasBoot]

This post sounds a bit like somebody predicting the end of the automobile industry in 1900 because the cars produced so far break down easily. Technology and society will develop in ways we have no way of predicting.

I am neither a technology buff nor a teenager. However, I do find that Facebook has welcome, albeit limited, uses for me. It'a a great way to stay connected with people I don't see very often or to quickly exchange information of varying relevance. I get bored usually after about 10 minutes on it, but it serves a definite purpose.

It's a general problem to make the unlimited amount of information generated by web2.0 meaningful to users. In the humanities, where I come from, some people are slowly realizing that this is where old school ways of research and presentation could make a big comeback. An experienced historian knows what links would be most helpful after a certain wikipedia entry, for example. We just have to find ways to make it happen.

Lastly, money should not be the first arbiter of this. Furthering a global exchange of knowledge is an ethical challenge to all of humanity.

[rughead23]

Was the robotic probe to Mars solar powered?

[KillTheMessenger]

Yes.

[sjones66]

The value seems to be similar in model to google -- it's in the vast amount of info FB has on each subscriber. the ability to target ads based on likes and dislikes. The info alone is worth a fortune to the right buyer.

[InofTouch]

Google is more of an advertisement company with Internet

[sethiuss]

Web 2.0 is an interesting experiment at best. I liken it to reality TV. It will never truly die but it will evolve into something else and/or be incorporated into new programming. The same thing will happen with Facebook. Social-networking can be used productively but each user must have a specific goal. If the goal is just to meet people and make friends, then mission accomplished. If you ask anyone what Facebook is used for, the first thing they will say is its for "staying in contact with friends." Facebook, in short, is not a professional setting. It is also not a lot of other things that I wont go into but what me must realize is that you can't reach every demographic and maintain integrity with each demographic one wishes to woo over and keep. In this sense, Facebook can't have its cake and eat it too.

For the users of Facebook and other social networking sites: A person must admit at some point when networking with friends/ac­quaintance­s reaches a superfluous level. Having to maintain constant contact with my friends, having to know what they are doing at all times--some would venture to say this is childish. If a friend can't email you or call you on the phone (or even send a letter), then what friend is that? In short, Facebook is good for one thing: It allows people to refuse the fact that friends come and go throughout our lives.

[famebook]

...or perhaps where previously time has prevented more regular social interaction it is now flourishing because at heart we are mostly sociable. Call me childish, but I enjoy regular updates from my family, friends and colleagues and would suggest that it is the less sociable amongst us who will become superfluous...I hope my friends agree! If I suddenly find they remove me from their profiles, I'll let you know ;-)

[famebook]

Sorry Peter, I rarely disagree with your opnion but...

The death knell is not ringing for social networks, it is ringing for newspapers, magazines and TV stations who have either regionally or vertically alweays been the de facto option for their relevant audiences and who have as a result dominated the flow of advertising revenues. Similarly, they have had the luxury of influencing what is news and what is trivia and spoon fed global audiences accordingly and in very structured formats.

Personally, I enjoy meeting new people via Facebook and LinkedIn and am old and ugly enough to sort my own wheat from chaff. I also know is that most of the Founders and CEO's of the leading online companies and big media brands have Facebook/ Twitter accounts and use them daily. I notice you don't though...

In my humble opinion, the likes of Google, Facebook, You Tube et al have created huge oceans which the smart media brands are building ships to sail on where the journey (to advertisers) will vary in price. Sure some will go it alone and cling to the safety of an unchallenged and independant island in the hope they can build their own platforms, but I would venture to suggest in advertising terms they will be deserted!

Jan - CEO famebook.com

[KSMullins]

I have to agree with Jan on this issue. I am a 40's business professional who enjoys Linked-in and Facebook. It has allowed me to reconnect with friends, co-workers, and family that I otherwise would not have the opportunity to interact with. I live in a state far from family and friends and am certainly not unique is this, as many Americans are increasingly mobile as they move with the job market.

And google, Flickr, and YouTube...well honestly, they are almost my library into the world. It's better than TV, better than books and allows me to explore the world in much the same way I used to spend hours wandering in the Valparaiso Library so many years ago. And the best part is that I am in control of the content that I want to see with the limited free time that I as a working American have to do such things. When traveling overseas on business these sites keep me connected to home and the English language..­.particula­rly useful if you have ever had to watch Italian TV...(and I don't wish that on anyone).

These sites are supplying a need that many of us want filled in addition to the "real" world physical contacts we have. Besides I can't travel 1000 miles nightly to visit my brother...but on Facebook...it's like he's next door.

[listeningpost]

While I agree with Schwartz in the main, I think the focus is off center. The crux has very much to do with content. Up till now, the model that has engendered internet communities has been to provide the content for free and monetize by charging advertisers for eyeballs. Devaluing content affects those on both sides of the screen, actual content providers, such as artists, gain direct access to the audience but the access is diluted by the empty calories pumped in by anyone with a cell phone camera etc. So called democratization is hard to distinguish from just plain noise.
America has come to equate commerce with transaction, little or no attention payed to the content, just the deal. That is largely what has tanked our economy.
Free access, free downloads, free can also mean without value. Till now, because industries still have one foot in the 20th century marketing mind set, internet entrepreneurs have been able to dazzle them with stunning numbers of potential "eyeballs" while evading the qualitative value of advertising in that environment. Teen participants might make a rabid and exciting constituency, but really their spending ability and interests are quite narrow. Not the mention the fact that, if most people are like me, ad blockers are used and the banners are never even seen.
Google maintained an equilibrium by including qualitative metrics and relying on eye candy not at all.
The concept of web 2.0 is evolving, not dying.

[eXcommunicate]

A lot of Web 2.0 sites are run by geeks who have no business sense. They give away so much content and features that they should be charging for. The solution is not a monthly fee, but to sell apps, features, and content, ala iPhone.