Photo: AP
When I wrote “Here’s Why Google and Facebook Might Completely Disappear in the Next 5 Years” a month ago, I had no idea it would strike such a nerve with so many readers.
At the time, Facebook (FB) was on what looked like an inexorable march to a $140 billion market capitalization. Although some people had commented about the threat of mobile to Facebook before that post — after all, it’s clearly listed as one of their “Risk Factors” thanks to their lawyers in their S-1 — it didn’t seem like a big enough concern to slow down this 18 wheeler heading down the IPO roadshow freeway.
Yet, one month later now, there have been a number interesting data points, which suggest the “mobile only” generation of Hypernet companies who have no ties to a desktop PC website is taking hold very quickly, which is bad news for a company like Facebook which was born and thrived in the prior “social” PC-based generation:
- GM (GM) cancelled its $10 million ad budget for this year that goes directly to Facebook, citing the ineffectiveness of the ads
- While on their IPO roadshow, Facebook’s CFO or junior finance people appeared to tip off some institutional investors that the current quarter’s (Q2) results are worse than previously expected.
- Jim Cramer has said he thinks the reason for the bad Q2 is due to a faster than expected migration from desktop users to mobile users hurting the company’s monetization efforts.
- Facebook bought small mobile commerce firm Karma.
- An industry insider told me privately that Zuckerberg “just got his first scare” with how fast mobile is growing and that he’s laser-focused on the problem.
- Rumors came out over the weekend in the New York Times that Zuckerberg was beefing up efforts to make Facebook an actual mobile phone company rather than just an app on a mobile phone company.
And, of course, Facebook bought Instagram in early April. Instagram is arguably the biggest mobile-only generation company today and the one with the most momentum behind it, in my view. Of all the mobile companies born in this 3rd generation of the Web (i.e., founded less than two years ago), I think Instagram was the one who – within 5 years – had the greatest likelihood of surpassing Facebook in terms of coolness, prominence, and buzz (just as Facebook surpassed Yahoo and other cool 1st generation Web companies). So, it was a brilliant move by Zuckerberg to take them off the market. It was clearly anti-competitive, in my view, given that Zuck is preventing a company from growing large enough to seriously compete with him several years from now. However, I doubt people at the FTC and DOJ will ever see it that way, because they will only look at the here and now and Facebook will argue it’s merely adding an incremental product feature (mobile photos) to their core website.
So, Facebook seems to see that mobile matters and is a potentially very destabilizing force to its current perceived prominence in the Web industry. They probably thought they’d have a few years or at least a few quarters to figure out their desktop PC-based web ad model. Now, Wall Street and an army of mobile-only start-ups are forcing Facebook to have to face up to the challenge of creating a mobile business model — something only Apple(AAPL) has figured out so far (which may be why both Google and Facebook seem to want to get into the hardware business).
Before discussing why I think Facebook will have a challenge transitioning to this brave new mobile-only world — even with their new found IPO wealth — it’s worthwhile remembering how much Mark Zuckerberg (and, by extension, the entire Facebook management team) dismissed mobile for most of the last 2 to 2.5 years.
I’ve previously written about and pointed out this video, where Zuckerberg says – in November 2010 – that the iPad isn’t mobile… it’s a computer.
And I’d recommend going over to Business Insider to see a longer version of that clip which sheds more light into Zuckerberg’s view on this topic back then.
Zuckerberg is clearly Facebook’s greatest strength but also its greatest liability going forward. If he sees where the world and gets ahead of it, Facebook will likely stay ahead of the competition. If he misses a key trend, after disregarding it, and then furiously has to play catch up a couple of years later, he could significantly impair the company’s abilities to stay in an industry leadership position.
But there’s another key event in the last year which goes to this risk of Mark Zuckerberg missing the next big thing in tech, which I wrote about on the day Facebook filed for its IPO, on February 2nd, but which hasn’t been mentioned elsewhere (that I’ve seen) since the IPO train left the station. So I think it’s worth revisiting.
On September 26th, MG Siegler reported in TechCrunch that Jeff Verkoeyen, described as the developer who built Facebook’s iPad app, had quit Facebook to join Google’s “mobile team.”
Jeff Verkoeyen - lead FB iPad app engineer who's now on Google's mobile team
According to that story:
- Jeff had been working on the app for at least 8 months, sometimes working as much as 80 hours a week on it
- The app was ready to go live in May. However, Facebook decided not to release it.
- From Jeff’s blog: ”It is now nearly 5 months since the app was feature complete and I haven’t seen it released except for when the project was leaked on Techcrunch. Needless to say this was a frustrating experience for me. The experience of working on this app was a large contribution to the reasons why I left Facebook, though that doesn’t mean it wasn’t a difficult decision.”
- Facebook did release the iPad app on October 10th.
- According to Jeff’s “timeline” – which predates Facebook’s “Timeline,” so maybe he helped inspire this feature — he graduated with his undergrad degree in Computer Science from the University of Waterloo last June, a couple of months before he quit Facebook and joined Google. This suggests he built the Facebook iPad app, while still a full-time student finishing his final year of his college degree – from the best computer science school in Canada. (Impressive!)
- According to an old resume, Jeff interned a couple of times at Facebook (and Google prior to that) where he was also part of the “Facebook iPhone App team” and the “Facebook Comm-Apps team,” including working with famous developer Joe Hewitt prior to him leaving Facebook.
Now, these are all the facts, as they appear to be reported. The question is really what conclusions should be drawn from Jeff’s departure from Facebook to Google? Maybe, as MG Siegler’s post suggests, there was some heavy-duty negotiating between Facebook and Apple going on which delayed the release of the app. Or maybe the delay was more related to Zuckerberg dismissing how quickly mobile was going to grow. Or maybe a combination of both. We may never know.
It seems fair to conclude that Facebook didn’t live by their “keep shipping” motto (embodying their view that, it’s more important to get new code up on the website to test it, than to worry that it’s perfect code) in relation to their mobile offerings over the last couple of years. (And remember, this was Mark’s last piece of advice to his engineers after he rang the bell to open the Nasdaq the day of the Facebook IPO a couple of weeks ago – “keep shipping.”)
Zuckerberg doesn’t appear to have had religion about the importance of mobile prior to filing to do an IPO in February, but he does appear to have it as of today.
So, now that brings us back to my argument from a month ago of why I’m still unconvinced that Facebook will be able to easily address this mobile challenge – even though Zuck’s got religion.
The Facebook bulls who responded to my article from a month ago say:
- So what if Zuck missed mobile’s importance before. He sees it now and is focused on it.
- They can buy their way out of this problem. He’s got virtually unlimited capital post-IPO to throw at this problem. He’ll just buy any interesting mobile company and solve this.
- He’s a smart guy and will figure out a new business model for this new mobile world.
– Facebook has 900 million users. They’re not just going to stop using Facebook tomorrow. This isn’t MySpace.
I readily concede most of these points, but I still maintain Facebook will be handicapped by and underestimate the power of the same organizational, sociological, and cultural forces which made it difficult for the old Portals and kings of Web 1.0 to make the switch to Social/Web 2.0. Here are some points to consider.
- If being a public company and having lots of money in the bank guaranteed that you’ll easily be able to morph from one Web generation to its successor generation, why did Google and Yahoo! (among others) fail so miserably at the shift to social?
- Is Mark Zuckerberg any smarter than Larry Page? Or is the answer to why these big successful companies from one generation can’t easily adapt to the competitive aspects of the next generation have much less to do with any one leader’s personal abilities or intelligence and more to do with organizational, cultural, and sociological factors?
- This is really a version of what economists call “winner’s curse,” playing out among these inter-generational Web companies. To be successful in your generation and stay alive in order to see the next generation of challengers, you have to be a winner in your original generation. Being a winner means that you have a product (portal or search engine) which is successfully received by users and makes money. When the next generation of challengers start to appear, you still have to support the product which made you successful in the first place. You need product people to keep iterating on it. You need sales people to keep selling it. Senior management needs to keep telling investors and employees why this product is as relevant today as it ever was. If any outsider questions the winning product’s relevance to perhaps a shift in the competitive environment (such as the advent of mobile), it is senior management’s job to minimize that purported shift. This commitment to continuing to “win” by ensuring the winning product keeps winning can have the unintended effect of actually further disconnecting the winning company from what’s being asked for by current users.
- Although there might be a small group of employees within any successful company trying to see over the next hill as to where the technology world is going, they can often find it very difficult to get sufficient attention/support from senior management and the rest of the organization, as well as necessary resources, to steer the company to where it needs to go to retain its leadership position.
- The organization can sometimes make decisions that appear from the outside as bureaucratic and working at cross-purposes, even though there is an internal logic to the moves when they were made. A good example is how Facebook released its own mobile photo app last week — a month after spending $1 billion on Instagram which would seem to do the same thing. I would imagine there was an internal product team at Facebook working on this product for most of the last year. When the team was formed, they were probably asked to develop something that would “kill” Instagram. Now, Instagram is part of Facebook. I’m sure Zuckerberg or someone else in Facebook management thought they owed it to the internal product team to release the product anyway, even though it might confuse many users. I saw several reviewers state that they could envision a way of using Instagram for one context of sharing photos (publicly) and another context for using the new Facebook mobile photos product (with friends and family privately). I’m sure someone internally also argued that point of view. My thought is that this decision came about because of organizational politics, loyalties, and history. It’s obviously very different for some mobile start-up to compete against a big incumbent like this. The start-up team is focused only on doing one thing very well with no history baggage tied to a historical product. (And we haven’t talked about what will happen when you “integrate” the Facebook photos team with the Instagram team. People like to make fun of all the politics, bureaucracy, and back-biting that Yahoo! has seen over the years. That kind of stuff only happens in bigger and older companies. It doesn’t mean it’s impossible to control, but it just means the folks from Google and Facebook shouldn’t be so quick to dismiss the folks at Yahoo! as buffoons for making certain big company mistakes over the years.)
- There’s a difference between what Instagram would have developed on its own to become 5 years from now and what it will become in 5 years as a bolt-on to the core Facebook website. It is impossible for me to ever prove this point because we’d have to be able to live in two parallel worlds. However, I believe it very strongly. A couple of weeks ago, I was on CNBC and got to ask Dan Rosensweig of Chegg (formerly #2 at Yahoo!) if Facebook could have become Facebook if Yahoo! had bought them for $1 billion in 2006 (after Zuck had a handshake deal with Rosensweig and then Terry Semel backed out of the deal due to a drop in Yahoo!’s stock price – oof!). I’m convinced it wouldn’t have. Ask the Flickr, Zimbra, or Right Media founders their opinions on this. If you asked Kevin Systrom today how Instagram is going to do as part of Facebook, I’m sure he would talk your ear off about how nothing will change now. I just don’t buy it though. If I bumped in to him a year from now, I’d love to ask him: “just between us, talk to me about the organizational politics you’ve lived through over the last year compared to when it was just you and 12 other people at Instagram….”
- Even if Zuck got it right that Instagram was going to be the company that could have “killed” Facebook in 3 – 5 years from now and bought it today, organizational history suggests the probabilities are against him buying the one mobile-only company that will eventually displace Facebook from the top of the Silicon Valley cool list. This isn’t a knock against Mark Zuckerberg’s intelligence. It’s just based on looking back at how other successful companies with lots of bright young leaders and lots of cash at their disposal have done. You’d have to have a lot of hubris to say: “yeah, all those other companies seemed to miss the shift to the next big thing, but I won’t because I’m smarter.”
Some companies have been able to constantly reinvent themselves over multiple tech generations. Apple’s probably the best example I can think of. But even though they’ve brought some amazing new products to market in the last 5 years, that’s no guarantee they will continue to do so. Nobody will have the luxury of mailing in success anymore.
I think the next 5 years of the Internet/Web/Hypernet are going to be significantly more competitive than the last 5. So, if anything, it’s getting more difficult to stay ahead of the pack, not less.
There’s no way to guarantee how Facebook will remain a Web leader. Not being afraid to turn its back on its old website and destroy it is probably a good idea though. Adapting their motto to be “keep shipping – and stay humble” is probably also wise.
Full article can be seen here:
No comments:
Post a Comment