The future of Facebook

Is Facebook worth $100 billion? The valuation seems excessive – it’s more than Boeing is worth, but on some levels it could be seen as something of a bargain. Other tech companies such as Google and Apple are worth far more and many of the big trends are moving in Facebook’s direction. Global connectivity is increasing rapidly (from 1.6 billion online in 2010 to 3 billion in 2016 according to Boston Consulting) and the move to the mobile web also benefits Facebook hugely.

At the heart of Facebook’s success is surely a deep and long standing human desire to connect with other human beings. People like Facebook because Facebook makes finding new friends, or looking up old ones, easy. It’s also a fast and convenient way to stay in touch and share everything from party invitations to baby photos, which is probably why the website now accounts for one in every seven minutes spent online globally. Don’t forget that Facebook also knows an extradordinary amount about the minutiae of its users lives, which is why it’s able to target advertising so effectively (and why 85% of its revenue comes from advertising). The sheer number of Facebook users (currently 850 million and rising) and the amount of time users spend on the site (15.5 hours per month in 2011) means that Facebook is rapidly becoming the world’s de facto homepage with other companies increasingly linking to it because users have to login in using their real identities.

But what might go wrong for Facebook in the future?

The first problem the company faces is operational. How to scale a small start-up into a giant corporation? This shouldn’t be too difficult. The second problem is around regulation and this could be tricky. If Facebook continues to be successful it will, at some point, start to resemble a monopoly in the eyes of the US regulators, at which point there could be an anti-trust case. It happened to Microsoft and it could easily happen to Google and/or Facebook. The third problem concerns privacy. To date Facebook has been very clever about mapping the connections between people and what interests them and then selling this information on to third parties. Much of the time Facebook’s users have little or no idea that this is happening and those that do know don’t seem to care. But this could change.

The network effects that made Facebook so large so fast could act in reverse if users start to feel exploited financially or no longer trust what is increasingly seen as a rather arrogant and potentially autistic company. Recently, users were forced to adopt a new feature called Timeline and had to opt out if they did not like it. This created a few mutterings, as did the acquisition of Instagram and the use of facial recognition technology, but so far there are few signs of a serious Facebook fallout. But as the company grows larger there will be inevitable tensions between attracting users and getting them to part with their money. One also suspects that when it comes to privacy the company’s devotion to online openness will continue to cause it problems in the real world too.

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