Is Facebook failing?

The Death of Facebook

So for the last few months Facebook has spent more and more time in the news and been the subject of great speculation. People have recently been given insight into the rarely discussed world of Facebook internal financing following Goldman Sachs interest in investing in the company. It is now widely known that because it may breach the limit of more than 500 investors in it's non-publicly traded stock, it may now be forced to disclose it's finances or go public with an IPO which seems unlikely at this point. The deadline for at least the disclosure is set for April of 2011.

This all comes after Goldman Sachs just valued the company at $50 Billion to entice investors to shell out a whopping 2 million minimum investment each to get their piece of the action. Last year (2010), Facebook grossed roughly $2 billion by most estimates which means that it's currently valued by Goldman Sachs at 25 times it's gross yearly income. To give you an example of a successful public companies valuation numbers, Google trades at approx. 7 times it's value. This means that Google's stock would be worth considerably more than one who was traded at 25 times it's value (the income/value ratio is higher). Now it's not cut and dry by any means but the basic point is that Facebook at some point will have to prove how and why it's worth that much. In my humble opinion though, i don't think they actually are worth that much, yet.

Facebook is relying on the idea that it is so well integrated with everything on the web that it's growth must continue and people will always log onto facebook as much as they do now. Unfortunately, there is an underlying issue that could very well derail everything they are trying to do. That issue is that facebook is no longer what it used to be. The very core of the reasoning behind why people liked facebook and were so enthralled by it are being eroded and tainted by facebook itself, or at least what it has turned into behind the scenes. What do I mean by this? Let me answer that candidly.

What initially drew many people to facebook was the open information sharing amongst friends, peers, students, and scenes. It was a venue free of the myspace drama and over-flashyness that was getting old quick! But, like myspace it was still centered around what you wanted to say. You could speak honestly, post things you liked, share pictures, flirt, and be free to socially network with people. At it's core it was about expressing one's self how they wanted to be expressed and learning how others wanted to express themselves. All while browsing a non-cluttered, non-overloaded, easy to update, clean and simple environment. Ahh the good old days!

Then came the games, followed shortly by the ads, which in turn generated money, which brought attention, which was then exploited for more money and so the cycle began. All the attention and money led to facebook being a lucrative environment for profit so it embraced the role and began it's journey to the mainstream. More and more people were joining, friend lists started growing, news feeds got longer, next thing you know you were helping people tend virtual crops for meaningless harvests and then it happened. Your mom joined Facebook, then your boss friended you, then they created privacy settings so you could try to hind the things say and post from certain people. It was all over at that very moment. Facebook lost it's freedom, it's charm, and it's uninhibited core draw. Now instead of freely expressing who we are, we untag ourselves from compromising photos, we unfriend and re-friend people during arguments, we set our privacy settings carefully in case we make a mistake and post something too true or offensive to one person or another. We carefully select what we allow the general public to see and very often limit it to nothing but a profile picture. We're guarded in what we say and how we say it at times because people could use it against us for malice or profit, take it the wrong way, or get all hypersensitive and start a "did you hear what they did on facebook?!" conversation around the water cooler at the office on monday morning. I know i've persoanlly gotten more and more frustrated with Facebook and it's constant changes and features that's i've got to keep up on, or should I say keep an eye on.

Worst of all though, in my opinion, is the continuing and worsening exploitation of our personal information by this company. Facebooks' business model is based on advertising the right product to the right person or making that information available to those who wish to do so. Stop and ask yourself, how do they do that? Facebook analytic software uses almost every aspect of the information you enter into your facebook profile as well as the information you share with other facebook users or applications. This means that literally everything you do now is scrutinized to figure out how to make you, and people similar to you, purchase or view a particular product or service with less effort and expense or find out exactly what product you want to buy so they can advertise it to you. Now if that isn't scary enough in an orwellian sense, think about the 3rd party developers that also have access to the facebook platform, and subsequently a significant chunk of your data.

Recently it has been shown that companies like zynga and other popular facebook app developers have been selling the data returned from your profile by their apps for very tidy fees. Who are the buyers? Well, your guess is as good as mine but the numbers involved generally indicate there are lots and lots of people buying! Now, not only do you have to worry what you say, do, or how you look but also your basic personal information is now being spread around and treated as a commodity. Oh, and there's nothing you can do about it! There isn't much you can do about facebook itself mining and selling your information but I suppose you could uninstall all facebook apps that transmit your data to 3rd parties to mitigate the extent of your info from going to these unintended parties. But, how do you know which apps are which? Long story short as it is now, you don't! Financially speaking for facebook, it benefits them to keep it that way! Otherwise, you wouldn't install those apps that funnel out your data would you? No information being sold means no ad revenue and consequently their $50 billion dollar valuation from Goldman Sachs goes out the window. Speaking of Goldman Sachs, the firm has passed on facebook previously but now seems eager to invest despite the sites user numbers hitting a plateau this past year of 500,000,000 and not moving significantly above that.

Ok, so what does it all mean? It means that the facebook you log onto every day today is not the facebook that you became enamored with and addicted too. It may look the same on the surface (despite the seemingly daily layout changes) but underneath it's a whole new beast. It's not about us anymore it's about them now. It's the same thing that happened to myspace and people are beginning to see it. I personally have noticed that facebook is fading in popularity and people are starting to get more annoyed by it then inspired by it. It's not a place to really be yourself anymore. It's not really about a list of your good friends anymore, it's become a rap sheet of acquaintances that you have to keep up with. For businesses it's not a fun thing to do with their customers anymore, now it's a financially half-worthy necessity. Facebook has become the next fail whale (still remember that term? lol) and I for one do not believe it's $50 billion dollar public valuation one bit.

Seriously, now that everyone has facebook including your grandma who's left to sign up? how do you continue exponential growth when there are only so many people? To me it just doesn't add up! Facebook will stay a powerhouse on the internet for a while still because it is far too profitable for certain people to let it die, but mark my words. Some young start-up social network with it's priorities permanently geared towards the users will one day soon woo the crowds over and facebook will be left trying to do endless upgrades to it's facade in a vein attempt to stay relevant and get a piece of your data. Meanwhile, some clever open source developers will be welcoming people to a new, free, safe and actually secure social network where YOU choose what you want it to do for you and your friends. Til then, the habit of facebook will die hard but the flame of love for the once exciting and stimulating social network has drawn down to a dim flicker. Can Zuckerburg keep it lit after the Goldman Sachs hurricane passes by? We'll see!