Why Facebook is Too Big to Succeed
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
By Carol Kopp, Minyanville Staff Writer
LinkedIn (NASDAQ: LNKD) just strengthened its position as the Wall Street darling of social media stocks after the close Thursday, reporting stronger-than-expected revenue and raising its full-year outlook.
The company has three revenue streams, and all of them are looking good. Advertising revenue grew 64% year over year. Revenue from job postings and related recruiting services rose 107%. Premium subscription sales rose 82%.
And how is LinkedIn doing on that critical transition to mobile devices? No problem. About 23% of its unique accesses now come through mobile devices, CEO Jeff Weiner said during the earnings call.
LinkedIn had already more than doubled its price since its IPO debut in May 2011—raising concerns among some analysts that it had gotten way too pricey. But after the close Thursday, it rose nearly 7% more, to top $100 a share.
And now, let’s check in on The Big Kahuna of social media stocks, The Social Network itself: Facebook (NASDAQ: FB).
Facebook Manages to Disappoint Even While Meeting Expectations
Oh, dear. As LinkedIn was preparing to report its consensus-beating results, Facebook was going public with government filings which revealed that 83 million of its accounts, or about 8.7%, are “illegitimate.” They’re duplicates, or profiles of people’s pets, or businesses that look like personal profiles, or profiles created to facilitate spam-bombing, or otherwise “undesirable” accounts.
Aw, and I thought Jane Austen, Che Guevara, and Albus Dumbledore really were my friends.
To be fair, if 8.7% of Facebook accounts are fake, so are 8.7% of the enrollments in every other social media site that offers an easy, free enrollment process. That’s how many jerks and screw-ups there are in the world.
Still, when was the last time there was upbeat news from Facebook? Just as Facebook could do no wrong a year ago, now it can do nothing right. Its quarterly results somehow disappointed even while meeting expectations.
Analyst expectations are still upbeat about Facebook for the long term. But why?
Just a year ago, Facebook and social media were virtually synonymous, and social media was the vast new advertising and marketing opportunity of the future. It still is, but it looks increasingly unlikely that Facebook will dominate its category as Google (NASDAQ: GOOG) has dominated search and search-related advertising.
Nobody needs more than one best-of-breed search engine—not consumers, not advertisers. But it’s worth asking whether one social media site can meet the needs of all consumers and all advertisers all the time.
Surely there will be many social media sites, and the most successful of them will be intelligently designed and programmed platforms created for a particular purpose, filling a real consumer need.
LinkedIn and Yelp Fill Needs
Like this week’s two darlings among social networking sites:
LinkedIn was created to help professionals network. It works on the “Six Degrees of Separation” principle: Each person connects with people they have worked with, and their network grows exponentially from there. Just being there gives members access to recruiters or potential clients. For the more active user, there are job listings, specialized news feeds, and professional discussion groups.
Yelp (NYSE: YELP) was created to fill one of the huge opportunities in locally-relevant “content” that traditional local media failed to exploit when they had the chance. It lets consumers rate local businesses they use, so that other locals and travelers can benefit from their experience. Once a local site is fleshed out, it becomes a useful directory of services. It’s already in 90 markets, from Australia to the UK. But it looks pretty easy to replicate, so it can grow fast.
In its quarterly report on Wednesday, Yelp reported better-than-expected results, including a near-doubling of local advertising. It specifically cited increased mobile usage for its growth in revenue.
Yelp jumped nearly 24% after releasing its results.
Like LinkedIn and Yelp, Facebook started with a powerful idea, and a clear purpose. Students at Harvard could post pictures of themselves and brief descriptions of their interests, so that other students at Harvard could look them up. It was dynamic, so its users got in the habit of posting frequent updates on their activities and status. Like all the best Web concepts, it grew effortlessly and organically, until students throughout Boston jumped in, and then students everywhere else wanted their faces on the Facebook.
Facebook is now approaching 1 billion active users. It is an infinite number of circles, sharing mostly mundane minutia, and pictures of their kids. And that’s pretty terrific, for what it is.
But at some point, expectations were raised that Facebook would become the ultimate home page of the Web, the center of everyone’s online activity. And that’s not going to happen. It just can’t be all things to all people all of the time.
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