By Taylor Marvin
Alexis Madrigal makes a convincing case that Facebook’s business model is durable, despite its fiasco of an IPO. In particular, Madrigal argues, comparing Facebook to the defunct MySpace isn’t informative, because Facebook enjoys a huge international monopoly that would be extraordinarily difficult for an upstart competitor to challenge:
“It has long been trendy to compare Facebook to MySpace and Friendster, two social networks that were once dominant. But let’s get real here. There’s dominant and there’s DOMINANT. No social network has ever commanded a greater share of Internet users, their time, or their shared media. And it is not even close. MySpace got passed by Facebook when they had something like 120 million worldwide visitors a month. That makes Facebook 7.5 times larger than MySpace ever got. Friendster? They were in the single-digit millions.”
Social media users, especially influential young consumers, are finicky, and it’s easy to imagine some users abandoning Facebook for a newer competitor that’s perceived to be more exclusive. However, Facebook’s enormous user base — nearly 1/7th of the entire human species — is an enormous barrier for a smaller competitor to overcome.
In addition to Facebook’s much larger market penetration, the way people share photos on Facebook makes it difficult for them to leave the site:
“And it’s not just *your* photos that matter on Facebook. It’s all those photos other people have taken of you and your friends. That means you can’t simply take your ball and go home; all the other memories captured by friends that you have easy access to through the system? You can’t have them without everyone sitting on the same system.”
This is an important feature of Facebook’s durability, and I think the social media’s approach to storing photos has fundamentally changed since the period of MySpace dominance. Before Facebook, social media users primarily stored photos on their own hard drives, rather than on social media servers. Today that’s different: faster internet connections and lower server costs mean that most Facebook users use the site as their primary photo storage option, rather than their own computer. This is especially true after the advent of smartphones, which removes computers entirely from the photo to social media uploading process. If a Facebook user leaves the site they aren’t just losing access to photos other people have taken of them, but to any of their own photos not stored elsewhere. Of course, it’s possible to download individual photos, but it’s time consuming and Facebook doesn’t provide an easy way to download entire albums — probably deliberately. It’s in Facebook’s interest to make it as inconvenient to leave the site as possible, and as more and more users’ photos reside exclusively on Facebook’s servers leaving the social network will become more difficult.
However, I’m really too young to be making this observation — I joined Facebook in 2007, and never used MySpace. Does this theory sound credible to readers who’ve used both sites?
“On the one hand, Facebook is mired in the same relentless downward pressure of falling per-user revenues as the rest of Web-based media. The company makes a pitiful and shrinking $5 per customer per year, which puts it somewhat ahead of the Huffington Post and somewhat behind the New York Times’ digital business. (Here’s the heartbreaking truth about the difference between new media and old: even in the New York Times’ declining traditional business, a subscriber is still worth more than $1,000 a year.) Facebook’s business only grows on the unsustainable basis that it can add new customers at a faster rate than the value of individual customers declines. It is peddling as fast as it can. And the present scenario gets much worse as its users increasingly interact with the social service on mobile devices, because it is vastly harder, on a small screen, to sell ads and profitably monetize users.”
Read the whole thing.