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Why Facebook wants to be Google.

Wall Street has a funny way of getting to the bottom of things. When billions of dollars are on the line and experienced investors (i.e. those burned in previous dot com bubbles) are asked to pony up real cash, it’s amazing how fast hard truths surface. Facebook went public this month. And the event was a clash of cultures.

The first culture: Silicon Valley, where wild-eyed optimists believe anything is possible. Just come up with a brilliant idea. Ship it. Scale it. Then monetize it. But how? Don’t worry about that. We’ve got eyeballs. Just give us some money and we’ll all get rich.

The second culture: Wall Street, where hard-nose realists don’t believe anything but numbers and facts. Have a money-making idea? Prove it. If you can, we’ll invest, and we’ll all get rich.

The problem with Facebook's IPO is that they couldn't prove it.

If the Facebook IPO did anything, it was to shatter the illusion that Facebook can easily monetize users. In fact, it demonstrated the opposite. So now the strategy appears to be: Copy Google and hope for the best.

Here's what I'm talking about:
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It actually restored my faith a little that some reality surfaced on this shaky IPO.
I agree with you 100% and that hilarious because everyone else, including Google, have been accused of wanting to be Facebook.
There's one of the main problems right there, in the action chain:

"Just come up with a brilliant idea. Ship it. Scale it. Then monetize it."

Notably absent is "Usability test it."
Buying something that's trading at a whooping 100 times earnings is sheer idiocy. That's tech bubble mentality.
Let me tell you something, if FB had a real revenue plan that made sense I would buy the fuck out of their stock. But they don't. They have pipe dreams and they sold investors and people on nothing for speculation and what if's ...
Greed. I guess Mark was a dumb zuck to trust Morgan Stanley with his IPO.
Favorite quote from the article that pretty much sums up why a Facebook IPO was really a pipe dream:

"It’s serving me an ad for a mortgage company (I'm not buying a house), Dell computers (I’m a Mac user), a war strategy game (I don’t play online games), yearbooks for people who graduated from high school in the 70s (I’m not quite that old), wooden headphone covers (I don’t know why anyone would want this), financial services tips (I have no interest) and an ad that asks: “Are you a CEO?” (I'm a writer). Seven ads, and not one of them is even remotely relevant."

Search has been and always will be the most relevant indicator of what someone is interested in at that moment. I can login to FB ten times a day and post a status each time that tells you nothing about my interests. Whereas I can run one search on Google for wholesale leather distributors in Los Angeles, and you know EXACTLY what I'm interested in and what to advertise to me and how to market to me.
everything fb has done in the lead up to this gargantuan fail factory disguised as an ipo screamed "desperation". anyone with more than two brain cells to rub together knew this was a disaster looking for a portfolio to happen in. as if it wasn't clear enough, they have now opened the floodgates to an epic spamathon with the official launch of pay-to-promote. mass exodus imminent, at best they've got another year or two left before they're utterly irrelevant.
Nicely written Mike. You make some interesting points and couldn't agree with you more. 
Mike, great article as usual. Minor typo, I think a word got lost here:

"There's also serious chatter about a looked at by the FTC"
LOL a FB phone... codename fbone??? :-P
Facebook's recent actions mystify me. They buy Instagram... a few weeks before they release an in-house clone? They build a phone... instead of making something better for the phones that are out there?
yeah, ironic how everyone is looking for a "facebook killer" while fb is busy committing suicide.
+Jim Hebert Right you are. In fact there's also a paragraph missing. I've alerted my editor, and it should be fixed shortly. Thanks, Jim.
My pleasure! Now I get to look forward to a director's cut with a bonus paragraph. ;-)
Down to a mindboggling $27.14 from $38... Lost more money than the entire GDP of many countries.

They could have asked me what FB was worth and I'd have saved them billions for a very reasonable commission.

Nobody needs to be concern about facebook, they are very busy keeling themselves...
Of course FB wants to be GOOG. GOOG has a market cap of $200 billion and a healthy EPS of around 32 or so ... and FB, well, rather doesn't. Zuck needs to realize that it's game over -- coming out with a phone won't save them. Even if they started a search engine, that wouldn't help either.
+Mike Elgan crazy question but why hasn't Facebook made a "friend" bar on IE or FireFox? I would imagine users would love to have that top banner on the browser, for FB to always watch and users an eye on every message coming in.
I've been saying it about FB for years that I'm not convinced they have a good business model to monetize. (And I've been living in Palo Alto.)

I don't think they have the chops to successfully copy or compete with Google, either. We'll see.
Google really, really needs to build a robust API that will allow third-parties to post to G+. I don't want to be depending solely on Facebook.
Was sitting bang on $27.00 a second ago. Is about to visit $26-something almost certainly today.

Maybe that should be 'dead on'...
+Mike Elgan Facebook has been a farce from the beginning with no retail value at all. Investors were caught up in the hype and it cost them millions ,maybe even soured some for future net IPO's and that is the shame of Facebook
as i pointed out a long time ago, fb's business model is predicated on faith, and it will not work in either the real world or the free market. they might as well change the "share this" button to "short this".
Maybe they should open a church

I hear they can be quite lucrative.
I agree with everything the article said. There is another point as well - Google can take what it learns from its other products, especially search, to improve its Google+ suggestions of folks to follow - helping you grow your interest graph. This in turn, feeds back into what it can show you in terms of ads, etc. (It also means that your Google+ experience can be more rewarding to you, encouraging you to stay.)
People should change the phraise "preeching to a choir" to "hating Facebook on Google+". It's very easy to be right, when everyone around you is batting for the same team.
Facebook did not invent social-internet, but Google didn't invent search. However, when you want to look something up, your Google it, and when you want to share something personal (or catch up on personal), you log into Facebook.
The problem is that you cannot monetize it. We all breathe air, but we can't monetize it. The price of water does not reflect it's value.
I have a serious love-hate relationship with Facebook. I do not like Mark Zukerberg. He's not a leader, and not a game-changer. When you think of Steve Jobs, Bill Gates, Sergei and Larry, you think of people who really changed the way we go about our business.
Mark built a product that changed the way we go about our daily lives. Everyone is copying him, even big-old-Google. But there's less than 100 Billion dollars in that change. Much less.
Maybe that's another proof that not everything should be valued in dollars and cents.
Why is everyone so concerned about fb?? If the population should come here, then the quality of engagement will come down. So why the hate? Keep the majority of the population where it is. No need to move everyone here. I'm not using g+ purely for selfish reasons(ie self promotion) so I don't need a larger audience. Fb won't die as quickly as people think, it's not the same as my space. That was a time of experimentation, and people looking for solutions to keeping us connected. Things have stabilized a lot since then. Unless fb commits suicide, I don't see everyone jumping ship. The party crowd couldn't care less about g+
yeah. never mind the fact that they don't have even half that many actual users. #dummyaccounts #fakeaccounts #devaccounts #spamwhores #bots #ipersonallyhaveover150phoneverifiedfbaccounts
+Yishai Landau I agree with you that far too many things are expressed in monetary or economic terms, and that not everything should be valued in dollars and cents. But businesses should be. That's the one thing that should be valued in dollars and sense.

Yes, I know that there's too much Facebook bashing on Google+. (Just like there's too much Castro bashing in Miami. Here's where the victims escaped to.) And I try hard not to do it. But I wrote this column for professional reasons, and I post and promote my work only on Google+. So here it is.
Copying Google won't work because the mobile market is way different than the declining desktop market
+Mike Elgan - I agree that at the end of the day, this is business we're talking about, and as such, Facebook's challenge is indeed to monetize on those many millions of users who use their services (couple dozen million additcted users is still a lot of people). They haven't changed the game, and I think they have/had their opportunity with Zynga and such.
Bottom line - where credit is due, our fresh groom is fully responsible for an extremely successful website. He earned his fame, and will be remembered for many years to come. Will FB be the biggest party in town in a decade - not looking so bright if you ask me...
The real insanity is if folks have $30BN (must be down around 30% now?) to waste why not do something with it to benefit humankind's lot instead of chuck it at something meaningless like FB.
Greg M
The acquisition of Instagram has a majority of the $1B purchase price in the form of FB stock. I do not know if that valuation is based on IPO day or when the purchase is finalized. I heard that the latter may take until the end of the 2012.

Usually with IPOs the insiders are not allowed to trade their stocks in the company for 6 months. So the people with stock options may be rich on paper right now but the stock price is still on a downward ski slope and is not stopping. With FB they had a limited amount of stocks already issued primarily with institutions and backers.

I posted this before and it worthwhile reading
+Mike Elgan You've really explained FB's problem clearly, with numbers illustrate your points. I have a greater understanding now why FB has been snatching up these mobile companies like Instagram. I mentioned G+ to a client and told them they need to get a G+ page for their business asap, because of many of the things you articulated in the article. Great writing.
Informed investors knew FB can not possibly sustain the user growth.. So when they said that mobile was a negative impact on revenue in the SEC filling, it was a red flag for anyone who put in the time to read it BEFORE investing.. If you didn't read it and invested in the stock, I have no sympathy for you.

I disagree with.. "I think we can expect more desperate acquisitions." I don't think Zuck is desperate, he simply does't care about making money for share holders.. He was almost forced into going public, so he made the most of it with the outrageous initial valuation.. Now he has money to play with for the company and money to borrow against for his personal finances..
Facebook (the company) has an excellent product in Facebook (the service). It even makes a decent amount of money, to boot. They're not content with this, though, and are trying to find something to push it up into the stratosphere. This is a good thing!

However... The ideas they're currently pushing don't seem well thought out to me. I think Instagram and Buffy reek of desperation. They don't need to do anything desperate; they just need to stay smart.
+Rodney Cajudo Never give business advice to a client based on the writings and opinion of a single author. No offense, +Mike Elgan, you're a fabulous writer, but you know, Rodney, Mike is human. It could turn out that he is completely wrong. Always research everything before offering advice to paying clients.
Wall Street would paint rocks gold and sell them as such they could get away with it. In fact they did do just that with mortgage backed securities. Facebook is not the problem. Social media and what Facebook has done has been solid in its own right. Methinks the kool-aid was simply too diluted. The scheme is another alternative to painting rocks gold.
In order for Facebook to truly be a top-tier profitable company, they need to learn how to take advantage of their user base and create a great ecosystem ala Google, Apple, or Amazon. All of those companies have a bunch of different products and services, but all of them tie in with each other in a way which enhances the user experience and at the same time gets the user to spend money. Facebook needs to leverage their partnerships and acquisitions in a way to create a seamless user experience which also encourages the user to spend money...and it is not done by spamming people's walls with music your friends are listening to on Spotify.
+Rob Shinn Not based on only Mike's writing. I offered this advice to them yesterday before I read this article. And I basically said they need to start a Google+ page, something that is free for them to do and I believe, as many also believe, that having a Google+ page for their business will be beneficial for them.
This is one the best write-ups on the problems that Facebook has that I've come across. There is a significant difference between Silicon Valley success and Wall Street success and I hope that FB's IPO issues are a warning to other companies thinking of going public.

I actually think that this decline in FB's stock price is a good thing for the industry as a whole. Bubbles are good for very few, a solid dose of reality is good for everyone now and then.
+Mike Elgan I think you're wrong. Google's mobile strategy is at risk as apple dumps their services little by little. iOS 6 is rumored to be dumping Google Maps.

Facebook doesn't have to make money by displaying ads everywhere. Almost every new mobile game is facebook integrated. not google+ integrated.

facebook is a platform. if i wanted to read about a band 30 years ago i would have buy a magazine and hope they had a story about the band i liked. Today Metallica and others are in my facebook/twitter feeds.

Google is already where MS was 10 years ago. lots of competitors want blood but no one can beat them head on. so its death by thousand paper cuts
+Alen Teplitsky Check your assumptions. Google's mobile strategy is to make sure Apple doesn't and effectively can't get a lock on the smartphone and tablet markets. Android very effectively does exactly that.
+Alen Teplitsky, Google ain't bleeding. There's lots of healthy competition. Google shares the market with some other great companies and that's they way they like it. They win some; they lose some.

Also, things could go the other way. What happens to Apple if customers scream out because the new iOS6 maps is significantly worse than the (Google) maps offered on competing Android phones?
I always thought their intention was to copy Google. I think its the only way they will survive. If they try to stay afloat with just social sharing they will end up like Myspace.
google doesn't have to lose for Apple, facebook and MS to be successful. MS "beat" IBM yet IBM is still around and makes a lot of money. apple "beat" MS and yet MS is still around.

10 years ago MS was invincible. today very few people care about windows 8 coming soon. everyone was looking for someone to beat them with a traditional computer when it was death by thousand papercuts. lots of single purpose and simple niche devices.

same with google. no one is going to challenge them in search but there are lots of niche competitors. foursquare, news360, flipboard, zite, amazon, wolfram alpha, yelp, apple, spotify and lots of others offering niche services to keep me from using google

i'm sure facebook can be successful by not copying google

iOS 6 is supposed to use open street map. along with MS and others who are dumping google maps after they started charging for the API access. i'm reading that some think over time it will be better than google maps as applications stop updating google maps with new data
+Alen Teplitsky, Google doesn't charge for API access unless a single source is making a huge number of requests. No single phone does that.
true but from what i've read some new companies like foursquare are moving away from google because google wants to charge them for the access their apps make

and if google is a competitor it makes sense not to help them out
+Alen Teplitsky I disagree with half of what you said. iOS dumping Maps, etc only puts Google's mobile strategy at risk if you assume that some day iOS will be the majority of phones and I don't think that will be the case. In fact quite the opposite will be the case where Android is the majority simply due to the amount of selection available. Android may not be the greatest thing out there (I am not a big fan though I have one), but if you can't afford or don't want to pay for an iPhone, Android is pretty much you're only other option at this point.

Facebook doesn't have to make money with ads like you said, but I'm not sure what games being integrated with Facebook have to do with it? Unless you have to use FB credits in the game, they don't make any money off of a game sharing your high score. I am not sure the numbers on in-app purchases through FB, but I personally never use them as I feel its a complete rip-off and feel that most would ultimately feel that way. And your reference to Metallica is good, but if Metallica has a web page, they aren't dependent on FB at all, or G+ or Twitter for that matter, and can change social networks with the times. In other words FB is where you go for Metallica news today, but there is nothing stopping it from being somewhere else.

The same point about FB being what's hot now is valid about Google search as well. I do agree that Google is essentially where MS was 10 or so years ago. Google is much more agile than MS was at that time though so putting out a less than popular product (Windows Vista) is less costly for Google than it was for MS. But the point is valid and Google should be very careful over the next few years. Though it should be noted that all companies fade out of popularity eventually.

The big difference is FB essentially serves one purpose (sharing) but Google has search, email, maps, etc. If FB can grow in that way (aka trying to become Google) they will be more likely to succeed. Hence, +Mike Elgan is right.
if you believe google most of android's profits come from iOS users.

there was a business book i read a few years ago, can't remember the name. the point of the book with a few examples like Coke and some others was the goal being not to capture the majority of a market, but the profits. You can see this with Apple and Samsung, they control 99% of mobile handset profits.

apple doesn't have to have a majority of handset sales, they want to make the most money. dell and hp sell lots of PC's, but apple makes a lot more money off their ipad sales than dell and hp

with facebook, i don't think there is a future competitor coming. it's like any new market, you have a few early companies that fall to the wayside as the market matures. Ford and GM weren't the first to make cars, they made them better than others.

by now facebook is a platform. half the games on my iphone use it. my wife plays family feud with facebook friends on her iphone. spotify integrates with facebook along with other music streaming services. ticketmaster is facebook enabled. the list goes on
+Alen Teplitsky "the goal being not to capture the majority of a market, but the profits." That is a great point! And absolutely valid here. I am just under the assumption that Google essentially makes money based on the number of eyes that see their ads, that's why I felt a majority of handsets is an important factor. I'd be interested to see the numbers on Google's mobile income, I'll have to do some digging. But, thank you for the great brain fodder!

See I disagree about Facebook not having future competitors. While Facebook was hardly the first "social network", I would consider it a pretty early one and leaves a lot of room for improvement. As pointed out in the article, I think the main reason Facebook is still successful is simply because it built up a large user base, not because of its features. Also I would consider G+, Twitter, FourSquare, etc some form of competition if not direct, essentially the same argument you made about Google's death by a thousand cuts. I just think Google offers a better product than Facebook and so it is more immune to this competition. Facebook is a platform, which means it is used by other products and companies. I think those other products and companies will use whatever platform is best at the time. Which means right now Facebook is a part of their success, but the truth is having any successful platform is a part of their success, regardless of whether it is Facebook or a competitor.
Google is built from the inside out. Facebook has positioned themselves to grow from outside in. There's a big difference there
Who to trust between the bad and the worst? My bet is on Google as a company I most trust with my data. Larry Page on Charlie Rose (via Cnet):

Page continued: "From a user's perspective you say, 'Oh, it's great. I'm -- you know, I'm joining Facebook. I want my contacts.' In Google, we said, 'Fine, you know. You can get them from Google.' And the issue we had is that then Facebook said, 'No, Google, you can't do the reverse.' And so we just said, 'Well, users don't understand what they're doing. They're putting data in, and they don't understand they can't take it out.' So we said, 'We'll only participate with people who have reciprocity.' And we're still waiting."
+Alen Teplitsky Google doesn't need to make one red cent off a single Android device. All they have to do is keep the phones in the hands of people. If a majority of people are using Android phones, then those people are seeing Google ads, which is where their profits come from. Apple's profits from iOS mean nothing to Google, they are irrelevant.
+Mike Elgan out of curiosity what happens if I sign into a site using my Facebook account? Does that give Facebook a better idea of how to push ads to me? I admit I never look at a Facebook ad nor do I intend to, but was curious if this is something that actually helps them. Thank you for this well written article. Made a lot of sense.
Funny how the empirical data contradicts a lot of speculation that facebook was going to have google's lunch.
Great Article +Mike Elgan . Every sentence in ur article made perfect sense. I am not a fan of FB or Zuckerburg. I always felt him like a little kid with inferiority complex and keep trying to get everyone's attention by tryingn to shout and claim he has built something great when in reality it is just mediocre. But the more people hear about it, they feel they should also be in the show and jump into the boat and its a cycle continues.. as the saying goes.. "An overly repeated lie starts to sound more convincing than an unheard truth ".. 100$ billion valuation is all part of it.. The 1$ billion accusition of Instagram was just a way to blind fold our eyes in believing the FB valuation math makes sense..

BTW, i love the engagement here on G+, though i hardly post, i am still engaged because if i see a good article, i am busy in reading all the 100 comments...
Social media is nothing new. The Well, Bulletin Boards in general, AOL, Prodigy, IRC, web forums all are social. It will keep evolving and that's what everyone's getting now
I'm still wondering how come Facebook could get onto the board with such price, where was the money come from?
+Mike Elgan , Really good article.   My big concern with Facebook , is now that it is public, it has to conform to the needs of the stock holders first, which may mean that what they want may not be what's best for the Facebook community and that will lead to more people leaving FB for other social networks.  I think Facebook has to tread lightly between the good of its loyal community and its newly   invested stock holders.
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