It’s not a great time to be a Facebook shareholder. Despite warnings from the wisest of minds about what the future holds, many of you went ahead and bought shares. Shares that have since lost half their value. But what’s going on here? Can Facebook make good and turn itself around? Or, like newspapers, is it the product of a bygone age?
Ah newspapers, remember them? There was once a time, not long ago, when newspapers were witnessing a new golden age. Rather than being chained to their domestic audiences and handicapped by printing and distribution costs, newspapers could launch their product online. Their content would be visible to billions and with it, the advertising revenue would flow in.
But how cruelly things turned out. Newspapers, facing online competition from everyone from blogs to social networks, saw their offline circulation hemorrhage. Newspaper circulation in the US (and I'm sure everywhere) has fallen every year since 2003 Scores of newspapers have now gone bust and of those that remain, many are struggling to find a revenue stream that works.
Some, like the UK’s Daily Mail, now the world’s most popular newspaper website, are fighting it out for clicks by creating more and more content of increasingly risible quality Others, like the New York Times, are experimenting with paywalls. And some, like the Huffington Post, just don’t pay some of their writers
Newspapers are now fighting for their survival. But most are using the wrong weapons.
To get more traffic and therefore more revenue to offset their loss in hard copy sales, many newspapers created more content, but on the cheap. That lost revenue from the decline in newspaper sales had to come from somewhere so newspapers sacked journalists by the thousands
The days of newspapers funding long term investigative journalism seem to be on their way out.
If a newspaper has a scoop or an expose, it‘s often the journalist that puts in the hard graft, before selling the story to the papers. But there are no guarantees that the story will sell, so the journalist bears all the risk. Newspapers themselves, once well-edited, concise conduits of education, analysis and thought are now flabby content mills.
Formerly respectable titles such as the UK’s Independent regularly publish such gems as "What your email [domain] says about you" and the Guardian (forgive the UK-bias) has waded in on the great issue of the age, "How to say 'hashtag' with your fingers"
Would these articles have appeared in a print newspaper?
I doubt it, because column inches are a valuable resource, printing and distributing a newspaper is expensive. It seems to me that stories of this quality are the product of a toxic combination of under-pressure journalists desperate for something to file and newspaper editors who need to fill e-column inches without the resources to finance a proper team of journalists.
There seems to be less and less regard for questions like "Is this interesting or useful?". The only question that now matters is "How many words is this?". I used to live with a journalist who was regularly given two or three hours to write an article. Given how long it actually takes to write something worthwhile (believe me, I know), is it any wonder we get served up the kind of articles we are? Or indeed, that precious few of these ‘articles’ appear in the print editions of newspapers? Which of course, the newspapers have to pay to print.
In their frantic search for ad revenue, newspapers have lost sight of their core readers and have gone content-crazy.
But in producing more content to get more eyeballs, they forgot the central rule of economics. As you increase the supply (of advertising) the price goes down. To get more actual revenue, you don’t just need more visitors, you need more visitors to offset the increase in pages vying for their attention. But as more and more newspapers played this game, the world’s 14 billion eyeballs found they didn’t have enough hours in the day. Increasing supply but stagnant demand means a price drop. And sure enough, digital revenues for newspapers have stalled.
So the newspapers are stuck. The more they churn out content in pursuit of ad revenue, the further the value of advertising falls. Under the current model they’re screwed. Sure, newspapers like the New York Times are having some successes with their paywall and their share price looks to be recovering ...
But the NYT, like all its competitors, is a fraction of the company it was 10 year ago.
The NYT is on its knees. The internet has crushed it.
Which brings us back nicely to Facebook.
Facebook sells advertising. It is no different from a newspaper apart from the fact that it’s us, the users, who create the content. All Facebook does is play host and connect us to the people we know. Its revenue model depends on clicking ads. As its share price tanks (currently around $19, down from its initial offering of $38), Facebook is facing a quandary about where the missing billions are going to come from. So what is it doing? It’s experimenting with ad formats
It will not surprise you to know that I think this is a terrible idea. The problem isn’t that people can’t see Facebook adverts, it’s that when they’re talking to their friends and connecting with loved ones, they don’t want to buy a new sofa. Or whatever. If there is one lesson from the decline of newspapers, it’s that tweaking your advertising isn’t going to help solve anything. After all, if a TV network wants to make more money, it invests in programming. It doesn’t just add more commercial breaks. If Facebook wants its share price to turn around, it has to search a little deeper.
And speaking of search, let’s just talk about Google. A company that has so far thrived by using an advertising model.
Google uses ads differently from Facebook, and indeed newspapers. It matches its client messages to the expressed wishes of its users. (Check out our PPC articles for more information). In other words, Google sorts the web, and when I want to buy something, it shows adverts for the things that I‘m looking for. The ads are useful for the advertisers and the users. It’s genius.
And then there’s Twitter, another ad-funded company that seems to be doing well. Twitter is an interesting case because it offers a brilliant product, what could be called ‘Facebook without the crap’, but doesn’t have the confidence to charge for it. Which is why, despite booming user numbers, it sucks at making money But Twitter is great. It provides news as and when it’s happening, not when a journalist is in the office. And, because you choose who to follow, you get comment and opinions from people you’re interested in, not self-aggrandizing editors who have climbed the greasy pole. Twitter, in my mind, is a fool for relying on advertising. People would pay for it So Twitter should charge.
Facebook, however, doesn’t have either of these luxuries. It doesn’t really do anything that’s particularly unique or special. Like the newspapers, it’s seen as a bit of a fad albeit a very popular one. Whenever it tries to diversify its revenue model, like with social gaming site Zynga (which once provided 19% of Facebook’s revenue), it invariably fails Zynga now makes a loss.
So what’s Facebook’s latest trick? Apparently promoting gambling to children Classy.
Desperate for revenue, update after update has been designed with advertisers in mind. It, like the newspapers before it, has become so blinded by the potential of advertising, that it has forgotten its users. And I‘m not sure what they can do about it.
People, I think, are becoming a little bored with advertising, especially the online kind. We’ve now been bombarded with commercial messages online for over a decade and we’ve had enough. We understand that ads help pay for services and products, but then those products are not free, there is a cost involved, it’s just not paid in dollars. Like all products and services, consumers will ‘purchase’ them if, and only if, they’re good value. So here’s the kicker, like Facebook or newspapers, websites actually have to be good if they want people to visit them and click on their ads.
And where does this leave Facebook and the press?
It’s difficult to avoid the conclusion that Facebook is actually in a worse position than the famously-troubled press. I‘m not suggesting they have it easy. In fact, it’s highly likely that in 10 years time press outlets as we know them won’t exist on anything like the scale they do now. But professionally produced content will always have value as people are happy to pay for good writing. That’s been true since the invention of the printing press and is unlikely to be untrue anytime soon.
But Facebook doesn’t make or do anything, it’s just glorified email. It’s clunkier than Twitter, has less functionality than Google+ and is less useful than LinkedIn. Facebook doesn’t need to mess around with advertising. It needs to offer its users something new. It needs to reinvent itself.
