There will be a lot published about the Facebook IPO in the next few days, much of it either hopelessly myopic or sanctimoniously cynical. Here’s my take on it, spoken as a guy who remembers the Netscape IPO in 1995 and how terribly inadequate the hyperbole about the world-changing effects of the web turned out to be. And why if anything, Facebook’s $95 billion valuation is too low.
* Caveat: in almost every case below, when I use the term “Facebook” I mean “social media as a broad paradigm.” But with Facebook being by far the largest, best-known, and most juggernautish (spell check tells me that’s not a word – it should be) of the players in the field, only enhances its value as a company and hence the value of its IPO.
1. Facebook will kill advertising. Facebook is (pretty much singlehandedly) making the world-bestriding 150-year-old advertising industry obsolete. Oh, it won’t dry up and vanish overnight, but it will morph and twist into something unrecognizable in a decade or two, and it will be built on the foundation Facebook is building.
Think of it this way: the advertising industry is built upon the idea of arbitrage. They know more than you do about what you might want to buy, and they make money by taking advantage of that gap in understanding. They do that by using sophisticated techniques to provide selective knowledge to assist with your consumer decisions, and they do so in ways that heretofore have been cheaper than doing your own research. Branding, franchises, television advertising – they’re all shortcuts, leading us to believe we know what we’re going to get before we actually get it.
But in the long run: why on earth would we trust a copywriter/television producer/graphic designer paid to embellish facts about a product (and omit or obscure others) when we can trust the experiences of people we already know – if the effort required is the same?
I’ve used this example for a few years now. Let’s say you’re considering buying a certain car. Which would affect your decision more: A) a Super Bowl ad or B) the experience of your brother who already owns that kind of car? Everyone knows the answer is the latter – there’s really no question about it. Until Facebook, however, our ability to mine the experiences of our social network was painfully inefficient and costly. Now it’s easy (and getting easier).
But wait, there’s more. Facebook’s disruptive paradigm shift is this: the same principle applies to all our experiences: from where to eat to what religion we should adopt to what we think about people we meet. The wisdom of crowds we trust has ALWAYS been the way we form our own opinions, and Facebook sits on top of the technology enabling that.
2. Facebook will improve everything you buy (or do or think). This is related to the first point: because the effectiveness of advertising is going to wane, it will become less and less possible for companies (or anyone) to put lipstick on pigs. There’s already a healthy skepticism about advertising among consumers and an increasing reliance (among web users) on others’ experiences when it comes to product selection. My wife is (as we speak) cleaning the upholstery of her car with a product she had never previously heard of, but “got good reviews” when she did web research this morning. When considering a book on Amazon, I look not just at the reactions from readers, but the amount of them and the ratio between positive and negative. Intuitively I know that a paid flack can create a puff piece or two, but it’s virtually impossible to skew the balance among a hundred people who have already read a book.
In the end, companies that make products or services won’t be able to mask their flaws with advertising dollars. Winning products will win because they’re great. And that means firms will (and already are) repurposing advertising dollars towards making their products better. I live and breathe web startups, and here’s something our industry knows: no advertising campaign can buy customers for a product that sucks. But a great product can gather customers without one.
And here’s why that matters for the Facebook IPO: the closer the social connection between us and the people whose opinions we value, the more influential its effect. And Facebook owns the list of people I trust.
(Next:
3. Why Facebook is about Facebook, and
4. Why the least interesting thing about Facebook is Facebook)
