The Economist: Facebook is not a business

Ran across this article from the venerable Economist.com that led in with the by-line:

"Social networking will become a ubiquitous feature of online life. That does not mean it is a business"

YES!!!! I finally get some validation to what I have been saying here, here , in Dec 2007, and in Nov 2007: Facebook does not have a business model worth USD 15 billion.

The article likens AOL's recent purchase of Bebo for USD 850million to Microsoft's purchase of Hotmail back in 1997 for USD 400million and made Sabeer Bhatia very rich.

"Both deals, in their respective decades, illustrate a great paradox of the internet in that the premise underlying them is precisely half right and half wrong. The correct half is that a next big thing—web-mail then, social networking now—can indeed quickly become something that consumers expect from their favourite web portal. The non sequitur is to assume that the new service will be a revenue-generating business in its own right."

Free webmail is great. They are everywhere now, and Microsoft, AOL, Google, and Yahoo! are the largest providers. Microsoft wanted the subscribers and relaunched Hotmail under passport.com (remember that one?) to try to get these people onto an eCommerce gateway/platform. After that failed, passport.com became live.com to get people onto their search/online gaming/lifestyle/entertainment platform. All the while, people are still getting their free webmails, and their email account space has increased from a measly in 2MB in 1997 to a whopping 5GB or so in 2008.

"Social networking appears to be similar in this regard. The big internet and media companies have bid up the implicit valuations of MySpace, Facebook and others. But that does not mean there is a working revenue model. Sergey Brin, Google's co-founder, recently admitted that Google's 'social networking inventory as a whole' was proving problematic and that the 'monetisation work we were doing there didn't pan out as well as we had hoped.' Google has a contractual agreement with News Corp to place advertisements on its network, MySpace, and also owns its own network, Orkut. Clearly, Google is not making money from either."

So as that old Wendy's lady says, "WHERE'S THE BEEF?!??!"

The argument is that it is very useful for users, but it will be like "air" (needed, but free).

“We will look back to 2008 and think it archaic and quaint that we had to go to a destination like Facebook or LinkedIn to be social,” says Charlene Li at Forrester Research, a consultancy. Future social networks, she thinks, “will be like air. They will be anywhere and everywhere we need and want them to be.”

But wait! There's more:

"The problem with today's social networks is that they are often closed to the outside web. The big networks have decided to be 'open' toward independent programmers, to encourage them to write fun new software for them. But they are reluctant to become equally open towards their users, because the networks' lofty valuations depend on maximising their page views—so they maintain a tight grip on their users' information, to ensure that they keep coming back. As a result, avid internet users often maintain separate accounts on several social networks, instant-messaging services, photo-sharing and blogging sites, and usually cannot even send simple messages from one to the other. They must invite the same friends to each service separately. It is a drag."

Total drag. I mean I have accounts on Linked In, Facebook, WIWIH, Xing, Evite, Socialzr and a few others that I can't even remember who they are much less user name and passwords. (Please do not look me up in those networks and add me as your "friend".) I have heard so many people saying that they resisted getting a Facebook account, but were so bombarded with invites that they eventually gave in. And then what happens? "On Facebook, a social graph notoriously deteriorates after the initial thrill of finding old friends from school wears off." (i.e. you forget the user name and password.) OR Social Networking becomes Social, NOT Working.

Go on read the Economist article. I know it is the Queen's English but you will enjoy it nonetheless.

One last thing the article notes: "Google, Yahoo!, Microsoft and other firms are now discovering that they may already have the ideal infrastructure for social networking in the form of the address books, in-boxes and calendars of their users."

Well this all ties in very well with what I have been saying about Consumer Computing Services... Another piece of the pie that those BIG guys are fighting for.

You read it here first....