Facebook Should Not Be Treated like Other Media

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What is Facebook?

It seems like an easy enough question to answer, doesn’t it? If you ask the co-founder, chairman and chief executive officer, Mark Zuckerberg, he’s likely to tell you that it’s a platform which hopes to connect the world in a much more open way. If you ask the average person on the street, they’ll probably tell you that it’s an online place to connect with friends. If you ask a nerd like me, you’ll probably hear the words "online social network" or "social media channel" bandied around. None of those are wrong answers, but none of those are tied to any semblance of a business objective.

We’re looking for the business of Facebook.

Apple sells computers, iPhones and iPads. Ford sells cars, vans and trucks. Lululemon sells yoga clothing and gear. What does Facebook sell? You could say advertising. They sell advertising to the tune of several billions of dollars each and every year. If we lay that business model against other companies that sell advertising (think newspapers, magazines, TV shows, radio stations, online channels – like The Huffington Post, etc…), we wind up in one place: Facebook is a media company. Is that how the c-level suite of Facebook would define themselves? If Facebook is a media company, we then have to ask ourselves: what kind of media channel does Facebook provide and how does it compare to those other media channels?

This is where we start getting into trouble.

The current woes of Facebook’s IPO is being driven by business people who are lumping Facebook into every other media channel and comparing it – in terms of advertising revenue performance – to them. Why are we trying to make Facebook be like every other media business? Well, with over nine hundred million people connected on it, we have a mass audience of eyeballs that are primed for marketing and media messages because they spend so much time on Facebook staring at pictures of people they swore they would never want to see again after high school. The problem with this business model diagnosis is that the average Facebook user probably doesn’t believe that they’re on a media page, do they? The average Facebook user has about 120 connections. They’re not on Facebook to read the news, watch a funny music video or edit a piece of content. They’re on Facebook to share personal information with either people that they know or people that they want to know. A brand’s ability to get a message through to an individual with such a small amount of connections is challenging… to say the least. Facebook is a very personal experience for most users.

The business of Facebook is still – for the most part – undefined.

Two weeks ago, at the Canadian Marketing Association‘s Annual Summit 2012, Jordan Banks (head of Facebook in Canada) started off his presentation by saying that Facebook has accomplished only one percent of what it has set out to do, and that because of its massive user base, it will do some things right and some things wrong moving forward. The context of that quote wasn’t so much skewed towards product and future developments but to the business of Facebook. What this means is that it’s hard to say what the value of a Facebook stock should truly be worth, because Facebook has not clearly put a stake in the ground to define its own business model yet. So, if the only measurement we’re using to define the value and business of Facebook is the advertising revenue that it’s currently pulling in, we will probably be very far off of the mark when it comes to a true valuation. The problem is we have no way of knowing if that true valuation is way more than what the stock is currently trading at or if the net result of Facebook pushing beyond that one percent of where they’re at resolves to a place that doesn’t show any real semblance of a business model.

Is that even possible?

It is. This doesn’t mean that Facebook is bad. It just means that one billion people sharing their interests between friends may not be the most exciting IPO in the history of business, nor does it mean that there is hundreds of billions of dollars at play. It may, ultimately, just mean that Facebook is a place that connects the world in a much more open way. Nothing more. Nothing less. Until Facebook figures out how that becomes a serious business, brands may be best suited to figure out how to be relevant enough in a way to speak to a social graph with one hundred and twenty connections, instead of figuring out how to make Facebook so generic that it can be advertised on as if it were the website for The New York Times.

The above posting is my twice-monthly column for The Huffington Post called, Media Hacker. I cross-post it here with all the links and tags for your reading pleasure, but you can check out the original version online here:

5 comments

  1. Almost everyone from Zuckerberg to General Motors and big brands, that facebook ads are not that effective. What is effective are brand pages that allow for conversations between fans and companies. So why isn’t Facebook building its revenue on that?
    I suspect we will see a shift (like paywalls and newspapers) away from free Brand pages to Paid Brand Pages. Just makes good sense.

  2. I agree that Facebook should not be treated like another media site. Not even close.
    Did you see this Friday Globe and Mail article by Fabrice Taylor, CFA (this designation is very difficult to achieve, btw)?
    Facebook’s hidden costs?
    http://www.theglobeandmail.com/globe-investor/investment-ideas/fabrice-taylor/facebooks-hidden-costs/article2442975/
    This is the paragraph that made me go A-ha:
    Simple: Facebook is by and large a photo-sharing site. Most people log on to see pictures or comment on them, like the “friends” who write things like “nice legs, shame about your face” on my wall.
    Fabrice also explains, quite rationally, why the Instagram $1 billion purchase. Chatting with a senior-level tech banker (one of the Big Five) at the gym last Saturday, he indicated that we’re probably going to see this time after time, Zuckerberg purchasing upstart startups, to nullify the competition at the front end. Particularly if related to the “visual” side of things.
    Ergo, Facebook should also be treated differently, because of its larger focus on the visual over the written.
    Cheers,
    Judy

  3. Of course Facebook is a media company. People go there to consume content and the platform is supported by ad sales. Sounds like a media company to me. There are differences of course. The content is largely created by the users, and its interactive. How could Facebook go public without knowing its business model? Here it is: Collect personal information to sell targeted ads. That represents 84% of its revenues. Seems pretty straight forward. Of course that will evolve, as any business does but I don’t think it is as complicated as you present here.

  4. I believe Facebook is in one business: selling marketing information. Media is just the lure. Sharing info with friends, the way to get more information. They haven’t even begun to tap how they will utilize the valuable information they have about us – they really aren’t sharing that much with advertisers.
    Before everyone gets upset, businesses have been selling our information for years. Ever subscribe to a magazine only to receive an onslaught of junk mail? What about credit card companies? Those businesses know lots about us and its worth money to lots of other people.
    I haven’t any idea what Facebook is worth, but I know they know more about more people than any other company in the world.

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