Within 60 days, an event will occur that may be the most devastating development in the young history of social media and for the businesses and individuals who love it so much:
Facebook is going to become a publicly-traded company.
If you have ever worked for a public company you can relate to what I am about to say. If you haven’t, you’ll have to trust me.
The pressure of “public”
The tone of Facebook and its strategy is about to change in ways that could portend desperation and disaster. Instead of managing for a long-term vision, becoming a public company creates an inexorable and relentless pressure to meet quarterly sales goals.
If you have ever been an executive in a publicly-traded company, other than hearing “A crew from ’60 Minutes’ is at the door,” there is probably no greater pressure in business than the demand to grow, grow, grow the revenues; to “beat the street,” without exception, without fail.
Maybe it will take a few months, a year or more, but inevitably the marching orders of Facebook executives will be determined by this constant drumbeat of “more, higher, faster.”
Now, what is the source of Facebook’s growing revenues? You and me.
Virtually the entire economic model of Facebook is based on a single tactic: collect as much personal information about users as possible as a way to sell highly-targeted ads. For Facebook to succeed, it must collect increasing amounts of information about you. More information equals more ad revenues.
Through this lens, we can now view Facebook’s new Timeline innovation as a clever move. The company encourages us to post and share everything about our lives, which will lead to more advertising opportunities. You can be assured that every new feature and innovation will be aimed at two things: 1) collect more information and 2) create “stickiness” so you spend more time on the site (to share information and view ads).
Is this sustainable?
We have to consider the following: Is this relentless collection of information and selling of ads sustainable in a way that meets Wall Street’s expectations for continuous and aggressive growth?
Facebook’s prospects seem bright in the near-term. It’s starting to mine Timeline information, and the possibility of organic growth in new countries like China present vast opportunities for data collection and advertising.
But will we reach a saturation point where it becomes impossible for Facebook to squeeze any more information from us? Will we reach a day when Facebook’s insatiable need for data becomes annoying and invasive? Is there a theoretical limit to information gathering? Is there a limit to the amount of time people will spend on Facebook?
The other collision point is that the advertising model is in transition. Smartphones are already the first screen of Internet access for 28 percent of Americans and in some parts of the world (like the Middle East), it is already more than 50 percent. Compare how many ads you see displayed on your computer versus the smartphone version of Facebook and you will begin to see the crunch Facebook will be facing.
Google, which went public in 2004, faces the same problem. The pressure is starting to show. I found it extremely odd when the company (who professes to never be “evil”) knowingly took a detour around anti-ad-tracking features on Apple’s iPhone to spy on our private information. It stopped the practice only after being caught by The Wall Street Journal. Apple vowed to stop the Google’s shady practices.
Why would Google do something this stupid? By now you already know the answer: As a public company, Google is under incredible pressure to collect our private information to sell ads.
Similarly, executive bonuses are tied to the success of Google+. What kind of behavior will this drive at the company, when vast personal fortunes are at stake … and the platform increasingly appears to be a ghost town?
What will be the answer to the pressure for growth?
This is a glimpse of what we will one day see from Facebook. Undoubtedly it will look for adjacencies and new sources of revenue, but nothing in the foreseeable future will come close to making a dent in its reliance on ad revenues.
At some point, Facebook will be faced with the reality that the well of personal information will be tapped dry. The opportunity to create advertising impressions will slow. Mark Zuckerberg will face unimaginable pressure from Wall Street and his shareholders. His company will have to find new ways to turn their vast resource—our personal information—into new sources of profits.
And at that point, Facebook will become the most dangerous company on earth. How does this perspective land on you?