September 4, 2012
The flaw in business models for new-media and technology companies goes back to the early days of the Internet. Sooner or later, the 1990s’ revenue-will-follow-eyeballs model will meet its comeuppance, if Facebook’s current stock-price malaise is any indication.
Extreme leniency from Wall Street, venture capitalists and angel investors in the past two decades has enabled flights of fancy and the launch of ventures that would never have lasted a year in the pre-Internet era. Now, the chickens are coming home to roost – and Wall Street, Silicon Valley types and gullible investors are paying the price for missing the point of any long-sustaining business: make a dollar more than you spend in meeting a need that requires fulfilling uniquely and repeatedly.
It is facetious to blame Mark Zuckerberg for Facebook’s woes. The man did what he knows best: create a product that changed the way almost a billion consumers worldwide communicate and connect. Wall Street’s job was to temper the enthusiasm by attaching realistic value to the services that Facebook offers to marketers being asked to subsidize the consumer’s free ride on the social network.
There is no other way of saying it. Greed has always been Wall Street’s undoing, and now it is Silicon Valley’s.
What sage advisors to Facebook should have been telling Mr. Zuckerberg and his management team was to develop a revenue model in tandem with the product, and not leave the money bit to the end.
In this age, the cycle for exploiting technology and new ideas is shortening to the point where companies have little lead time to build market share, generate revenue and eke out profits before the next big thing comes along. And then, the older technology or idea is abandoned in droves by consumers and marketers with little hesitation and there ends another dream of becoming an Apple or IBM – brands that weathered numerous crises by adapting to currents with products and services for the times.
Facebook is now trying all the tricks in its books to monetize the activities of a billion users on its network. It is turning to old-media’s business model of offering advertisers context to content with more targeted data. But every step it takes in that direction invites more governmental scrutiny over fears of privacy invasion. It is, put simply, a no-win situation.
Twitter is in a similar boat. Having built up a huge base of users that are addicted to the service, the company is now trying to serve ads to an audience that turned to the platform for its marketing-free clutter. Twitter is now turning its back on the very developers that worked to make its network relevant in an age of instant communications. Indeed, by taking several functions in-house is the only way Twitter can reclaim total control of its network and hope to monetize with sponsored Tweets and contextual ads.
Again, Twitter is turning to an old-media model to support a new-media concept that became popular for what it was not.
What is the solution to their quest to revenues? More important, how will these companies have the longevity of an Apple, IBM or Microsoft?
Such are the times that even giants such as Hewlett-Packard, Dell, Microsoft and Google are vulnerable. One major change in consumer technology or communication habit and these companies’ business models come asunder.
IBM was prescient in its move away from manufacturing products – with an exception to high-profit mainframes – to servicing marketers’ technology, analytics, database and marketing needs.
Apple understood – after a near-death experience – that the key to a secure future was control of the ecosystem to ensure enduring quality and the ability to pivot. It did that with control over hardware, software, communications, commerce, retail, customer service, entertainment, payments and advertising. That is a recipe for a company that supposedly boasts as much reserves as the United States Treasury.
Hash it out
Facebook and Twitter’s founders, investors and managers need to look in the mirror and ask themselves these questions: Is the company built to last? Are the services indispensable to the lay consumer’s work, play and home lives? If the users will not, can marketers subsidize the company’s offerings and see long-term value in maintaining a relationship with that audience? Will the company’s technology withstand competition – and there will be, no question about that – from upstarts with little to lose from the overthrow of the old order? More basic, will users continue to post, Tweet and bare and share their lives on their networks in the next five to 10 years?
The fear here is that Facebook and Twitter are the darlings of a particular decade, just like AOL, Yahoo, MySpace and Netscape were the bee’s knees in the 1990s to early 2000s.
What Facebook and Twitter and every other technology, marketing or consumer-focused company need to figure out is how to launch and sustain services and products that are not fads that serve the need of the decade. They need to understand, like Apple does, how to create an ecosystem that engenders and enables creativity with their products and services for consumers to lead better lives and businesses to generate sustaining revenue and profits.
Most frightening of all, Facebook and Twitter’s services depend on advertising models that would work mainly on larger computer screens and not today’s smartphones and tablets – smaller screens that are tomorrow’s computers and windows to work, home and play experiences. Advertising today is about context, creative, emotion, offer, audience – and real estate, which is scarce on mobile.
If Facebook, Twitter and pretty much every brand worth its salt out there are to weather the next two decades with profitable margins, then the chief worry should be staring at them: how to survive and flourish in the Age of Mobile – or the Age of Endless Choice – where consumer and marketer expectations are sky-high and their willingness to share pain for the gain is at rock-bottom.