Decoding the new economy

Facebook’s final fail

Has Facebook gone to far with its address changes

We’ve come to expect Facebook storing and manipulating our personal data, but is changing our contacts’ email addresses the final straw for the social media service?

Last week Facebook started changing users’ default email addresses to their inbuilt @facebook accounts.

This was irritating for many users, but now it appears the social media service has gone too far with changing the address books of their users.

If you have connected your iPhone, Android or Windows smartphone address books to the Facebook App, there is a chance that your contacts’ email addresses are now set to send to the user’s Facebook address rather than their “normal” email account.

When you synch your phone with your PC or laptop these changes will also be made in your main address book.

Given most people don’t use their Facebook supplied email this means many people won’t see messages sent to that address. This is a serious problem

You can check if your address book has been changed by simply looking at your contacts’ email addresses.

If it has, let your contacts know their addresses may have been changed as they can change the settings on their accounts. Read Write Web has instructions on fixing the address book problem.

Facebook’s behaviour on this is seriously worrying, it’s bad enough they store all of our data but altering our personal information is for me a bridge too far.

Given most mobile phone users would rather have their wallet stolen than lose their handset, Facebook’s messing with phones address book is going to shake their confidence in the service far more than the myriad privacy issues.

If the IPO was Facebook’s peak, it could well be this poorly thought out tactic that marks the beginning of the company’s decline.

Building the Internet’s Frankenstein monsters

Changing Internet empires give rise to strange alliances

Apple’s announcement of deep Facebook integration into their iOS6 operating system for the iPhone and iPad is the latest in the weird beasts created as the various online empires jostle for position in a changing marketplace.

We’re used to failing companies creating alliances – most notably Microsoft and Nokia in the mobile phone sector – and almost all of these ventures fail as they are akin to the two slowest runners in a race tying their legs together believing that will make them faster than the leader.

In other areas we see the big players buy out hot new businesses as the incumbents figure its easier to buy out the competition rather than try to compete.

While those purchases form the basis of the Silicon Valley greater fool model, usually the new business gets subsumed into the big corporation, the technology is lost and all but the most cynical founders wander off to do something more interesting.

Then there’s the merger of equals, and today’s announcement of Apple and Facebook’s deep co-operation is one of these.

Facebook has been talking about building its own phone – much to the scorn of industry participants – as the company struggles to deal with user moving onto mobile phones.

Apple is hopeless at social media, which is barely surprising from a company that employs its own secret police.

So the two coming together make sense although it may not work well as alliances like these can be likened like mating the world’s best golfer with a Grand Slam Tennis champion and expecting the child to be an Olympic swimmer.

Of course Apple had a successful merger of equals back in the early days of the iPhone – Google. The alliance worked well and, Google’s then CEO Eric Schmidt sat on Apple’s board for some time.

Than Google decided to develop its own mobile software build its own phones so relationships soured between Steve Jobs and Eric.

Now Google Maps has been ditched from the iOS phone system and steadily Google are finding their services being dropped from all of Apple’s products.

Those moveable alliances – not dissimilar to Eurasia, Eastasia and Oceania in George Orwell’s 1984 – are something we should get used to as the Big Four maneuver for position in the changing online world.

While it’s going to be tough time if you’re a mindless fanboi following the progeny of these strange alliances, for the rest of us it should be fascinating viewing.

Facebook’s Childrens Network

Do we need social media networks for children?

The Wall Street Journal reports that Facebook is developing a childrens network to overcome the problem of kids under 13 joining the service.

Underage kids getting on the network is a major problem for the social media service with last year’s Pew Social Media and Young Adult survey finding over half of US children logging onto these sites.

The rule of under 13s joining Facebook or other social media services isn’t one born out altruism – it was born out of the US COPPA law which was enacted at the end of the 1990s to protect young children from inappropriate advertising and data mining.

For Facebook and all the other social media data mining operations the inability to gather information on or advert to minors means they haven’t been interested in investing time or money in developing childrens’ networks.

As social networks become more critical to kids’ social lives, it’s not unexpected that younger children are going online just like their older brothers and sisters and this creates risks for services like Facebook.

To mitigate those risks, it was inevitable that Facebook would have to address the problem with setting up a service aimed at younger kids.

Where the challenge lies for Facebook and parents is encouraging kids to use the younger service. It’s going to have to be compelling for the youngsters to use it in preference to the adult network.

The key there is to get the critical mass of kids onto the service – social media platforms only succeed when users know their peers will be there.

So Facebook are probably going to have to offer most of the features of the main platform, without advertising or some of the more intrusive data mining and games.

It also won’t be possible to exclude adults from the kids network as parents and other relatives want to know what their offspring are doing and being friends with the younger ones is essential so they can see posts and other activity.

Age will also be an issue, it may well turn out that a kids network is more appropriate up to say 15 year olds rather than the current thirteen mandated by COPPA.

Overall, a Facebook Kids Network will be sensible move. The worry for Facebook is that kids might just decide there is more compelling place for their friends and interests.

Do you want to be the personal lubricant guy?

A reminder why you need to be careful with your Facebook likes.

Nick Bergas is a multimedia producer in Iowa City, but to Facebook he’s a live advertisement for personal lubricant.

As the New York Times reports, last Valentines Day Nick saw an Amazon listing for a 55 gallon drum of personal lubricant, ticked the product’s Facebook “Like” button and added a witty comment to his friends.

Shortly afterwards, Nick’s face started appearing in Facebook sponsored posts for big drums of personal lubricant.

Last year I wrote The Privacy Processors on how Facebook is using our personal data and Nick’s story is a good example of how every like, relationship or comment is potential fodder for Facebook’s marketing platform.

While Nick seems pretty chilled about his Facebook celebrity, for some it might not be so benign.

As we’ve seen for student teachers and others, an innocent or even funny posting may be a problem to those without perspective or a sense of humour.

For Facebook and other social media services, Nick’s story also illustrates a problem – that of “Garbage In, Garbage Out”.

While one of Facebook’s major assets is its huge user database, there’s no guarantee the data is accurate or useful.

Selling Nick’s details to a bulk medical lubricant wholesaler is pretty pointless, but that sort of intelligence is key to the future value of Facebook.

That much of the data gathered is the flaw at the heart of Facebook’s bid data aspirations and Google’s hopes to become an identity engine with Google+.

For us mere individuals, the lesson is we need to be a little bit careful about pressing those “like” buttons; explaining your affinity with bulk lubricants could be a bit tricky with your mum or partner.

Does Facebook’s float mark social media’s peak?

Is social media about to plunge into the trough of disillusionment?

After its successful float on Friday, social media giant Facebook’s stock is now 18% down on the IPO price and there are claims some investors were aware of revised analyst expectations shortly before shares went on sale.

Facebook’s share price isn’t being helped by large advertisers, most notably General Motors, publicly expressing their dissatisfaction.

In SmartCompany’s survey on business tech use, one statistic that stood out was that less than 30% of businesses were happy with their returns on social media.

Facebook can’t even win in the courts with a Californian magistrate throwing out the social media platform’s trademark case against a Norwegian pornography site.

It’s been clear for some time that the tech industry has been in an investment bubble and social media services have at been the centre of that hype .

The huge expectations of Facebook’s float value has been one of the drivers of Silicon Valley’s investment boom – a dangerous feedback loop in itself.

So now Facebook’s share price is in decline and angry investors are asking “why” and demanding answers from advisors and banks.

The real question though is does Facebook’s float mark the peak of the current tech boom in the same way AOL’s merger with Time Warner in January 2000 marked the peak of the original dot com mania?

One of the great similarities with the original dot com mania is the businesses’ failure to make money from their services – today’s Pintrest and Twitter have that much in common with the great Dot Com boom debacles of Pets.com and Boo.

The biggest problem with the social media services is most of them are advertising dependent. As we see from General Motors’ dissatisfaction and that of the businesses in the Smart Company survey, most businesses aren’t happy with the performance of social media platforms.

Getting the advertising, or other revenue streams, right is key to the survival of these services. Google cracked this after the original dot com boom and are now one of the most successful companies ever.

The companies that figure out the revenue models for social media, or online news, will be the next Google’s and Facebook could well be the business that cracks the code for social media.

For the social media industry overall, it appears the sector is now at what Gartner calls the “Peak of Inflated Expectations” on their hype cycle.

The next stage from the peak is the tumble into the “trough of disillusionment” and that appears to be where Facebook is heading.

As Gartner points out, that trough is also where good, stable businesses are built. While the sector or technology is scorned, those who survived the tumble out of fashion are able to consolidate and learn from the harsh lessons they’ve received.

Eventually the market rediscovers the technology or industry and eventually becomes accepted as a mature part of business or as Gartner put it, they enter the “plateau of productivity.”

This is exactly the process Amazon went through during the dark days of 2002 and 2003 after the tech wreck which today finds them as one of the Internet’s giants.

Whether Facebook can emulate Amazon or Google is for history to judge, but social media’s falling out of favour is not a bad thing, the wreckage of the current tech mania will see much stronger and viable social media businesses that will deliver real value to industry and society.

In the wreck of the dot com boom we saw HTML “coders” reduced from driving Porsches to driving buses, the same thing will probably happen to many of today’s social media experts. That in itself is not a bad thing.

Now Facebook’s challenges really begin

How can Facebook build their revenues to justify the huge market valuation.

The long awaited float yesterday of social media service Facebook was a triumph for the business’ founder Mark Zuckerberg, his management team and advisors.

A market valuation of 100 billion dollars for a business started less than ten years ago is an impressive achievement and that sum now presents massive challenges for management who have to deliver on what investors believe the service is capable of.

At US$38 a share, Facebook is valued at 76 times its projected 2012 earnings of 50 cents a share, and nearly twenty times its expected revenues of US$5 billion. This compares to Google which trades at less than 15 times its 2012 profit estimate and six times revenue.

For Facebook to match Google’s value, the social media service is going to have to start making serious money beyond they can from charging egoists and corporations $2 a time for featured posts.

Google’s success was in moving out of their walled garden, had Google focused on advertising just on their own search pages the company would be earning a fraction of the billions they now make every quarter.

It’s difficult to see how Facebook can move off their platform into other sites and with users moving to mobile, the company will find itself even more constrained by Google and Apple who want to control access to their devices.

A more obvious course for Facebook is to maximise income from the massive data base of likes, preferences, relationships and opinions they have amassed from their users. How they do this will probably be the biggest challenge to Facebook’s management.

In monetizing their database, Facebook will push the limits of the law, tolerance of privacy advocates and possibly the patience of their user base. This is going to test a company that has in the past been slow to respond to public concerns.

Another challenge is perception – with such a massive valuation, Facebook is going to attract critics regardless of what they do.

A good example of this is the number of people criticising the float for not ‘popping’ on the stock market debut. At the end of the first day’s trading the stock had only gone up 0.6% and some in the media claimed this showed the IPO wasn’t the successful.

The idea a successful IPO is one that soars on the first day of trading is a naive view from a 1980s mindset. The idea was born out of the privatisation of British and Australian utilities in the 1980s and 90s where taxpayers were seduced by the idea of “free money” in exchange for selling community assets cheaply.

A ‘stag profit’ from a share that soars on its public float is theft from the existing shareholders and a transfer of wealth to insiders and their advisors.

Silicon Valley venture capitalists and startup founders aren’t dumb and have never fallen for that trick – investors pay dearly for stock in their ventures.

While no-one would call Mark Zuckerberg and his management team dumb they have a big job ahead of them finding revenue sources to justify the $100 billion market valuation. It’s going to be an interesting ride.

Tag: Facebook

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