What the Queen of England Can Teach Facebook

Facebook stock is now down 45 percent from what its first buyers paid for it.  So if someone bought $10,000 worth of stock it is now worth $5,500.  Yikes. If you start adding zeros to those numbers it becomes real money. I almost dared not open my mouth when in a conversation months ago someone was wondering how to get his hands on some Facebook stock once it became public.  But I could not refrain, though I said merely that he ought to think about it before investing.

 

My reticence to say more was based on my professional knowledge and on an incident a decade ago when a friend of mine erupted at me when she told me a mutual acquaintance was leaving an important job to join a company to create a magazine on the web.  “It ain’t gonna work,” were my precise vernacular words.  Knowing something about how ads support an editorial enterprise, I knew the internet back then was – and remains – a tricky challenge to monetize.  Our mutual acquaintance knew nothing about advertising and had never seen the inside of an editorial operation.  And so, in but a bare few months the project went belly up at the cost of untold dollars.  The dot-com bust followed not long thereafter.

And what is Facebook?  It is supposed to be a huge market for advertisers.  But what it really is is an unformed collection of hundreds of thousands of individual, small markets that have so little in come that it amounts to a massive nothing so far.  The reason newspapers and the three major television networks pre-FOX worked for so long was because they really did present to unified markets.  In the case of newspapers, many served singular metropolitan areas – with unified market penetration.  Even a small newspaper today still can be profitable if it serves one market.  Television networks used to present to a vast, national market but are under pressure now from the explosion of millions of individuals who take their eyes increasingly away from their television sets.

The future of Facebook looks grim unless it can create networks of significant size within their hundreds of millions of users.  I have a Facebook account because I feel I have to, not because the need for it is obvious.  In the end that is the core issue to monetizing something of value: It is necessary – evidently necessary?  If Facebook disappeared tomorrow would its disappearance matter more than the disappearance of The New York Times, The Washington Post and The Wall Street Journal and Bloomberg News?

Facebook of course does offer something of value to individual users.  Some people spend hours on Facebook. But that is not enough to form markets large enough for advertisers to manage – yet.  If Firestone wants to sell a new type of tire, it still buys television time and reaches millions of viewers at once.  How does Firestone do that on Facebook?  Targeting some Facebook accounts with some sort of automotive-related data conceivably could accomplish the same thing.  But how will account holders who list nothing on their profiles that flags cars know about Firestone tires?

The challenge for all industries now is to figure out how to organize the new markets that society is forming, like the HispanicLatino market that has formed and that advertisers and network have now discovered.  Despite its diversity, it has enough of a common bond that makes its value evident.  There is not enough locality — if I can use that word — to Facebook, unlike Craiglist, for example.  And like newspapers.  And local television stations.   Facebook needs to localize its base before conquering the world.

When members in the English royal family refer to their job as working for “the firm” what they mean is that some of them work incessantly to expand their market share by patiently visiting the littlest villages in their country to keep them loyal to an otherwise outdated monarchy while others travel the world persuading countries to join their Commonwealth market.

So far, Facebook is a kingdom of disorganized markets in a larger, impatient market.

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