August 2, 2012

Facebook's Biggest Problem May Not Be Its Sinking Share Value Or Its Ad-Platform Struggles: It's Likely To Be the Same Thing That's Destroyed So Many One-Time Web Giants — Fickle Users Waiting For the Next Bandwagon To Roll By

Back in its pre-IPO days, Facebook could do no wrong. Sure, people grumbled about service upgrades and new features they weren't used to yet, but the social media giant commanded the most fiercely loyal crowd on the planet. It still does to a large degree, but the company has been showing signs of fraying around the edges in recent months. In what is now commonly called a "botched" IPO thanks to a string of embarrassing problems, the company had a decidedly rough debut. Its share prices went south almost immediately, and there they remain. Then came Facebook's first-ever earnings report last week — the company hit Wall Street's projections, but shares dropped more than 14% the following day to a new all-time low. In a matter of months Facebook's challenges have piled up dramatically, but if history is any indication, Facebook's biggest challenge may not be financial at all. At last official count, Facebook had 901 million active users, and was slowly but surely marching towards 1 billion. Although the company will undoubtedly hit that important milestone, lurking in the shadows will be one major issue all social networks have had to contend with, reports Fortune columnist Don Reisinger — fickle users. Here's how history has played out for some of the Web's most promising companies: Friendster died because users weren't kept engaged and felt that there were better options out there; MySpace — once considered impervious to the social network curse — entered a death spiral after Facebook came along and people realized that looking at MySpace's unsightly profile pages was too much to bear, and they left in droves. Google tried its luck in the social space with Buzz, only to watch it fail. The Web is littered with the remains of social services that met a similar fate. What those companies all learned is that social network users can be extremely fickle, Reisinger writes. They might love the service one minute and run away another. Less popular sites like Buzz watched that erosion occur nearly immediately. Others like MySpace took longer. But in every case, users left, Fortune reports.

Facebook is so aware of the issue that it made it a top risk factor in its S-1 Registration Statement filed with the Securities and Exchange Commission earlier this year. "A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously," the company wrote. "There is no guarantee that we will not experience a similar erosion of our active user base or engagement levels," it added, Fortune reports.

The issue for Facebook — and all other social networks — is that they have yet to land in the rarified position of "necessary." Google has become a necessary resource for finding websites. Facebook is just a place to hang out and communicate with friends and family. And despite Facebook's best efforts to deliver games and applications, and extend its reach beyond its own domain, it hasn't done anything yet that would totally safeguard it from possible obsolescence. The cash from its IPO will help keep it going. But at the end of the day, the very fabric of what makes Facebook special could still come into question, Reisinger writes.