Underestimating Facebook's potential

Facebook's IPO was certainly mishandled, at least in terms of public relations. Lawsuits have been filed over the nature and relevance of lower-than-expected earnings disclosures to selected institutional investors but apparently not other investors. Facebook, Morgan Stanley, and NASDAQ, have all been the subject of much finger-pointing about the poor value of the stock.

Some commentators have claimed that the lack of stock pop (a rise in value making initial subscribers money within hours or days of the IPO) indicated that the company was valued correctly or at least not over-valued. But many more have been warning for some time that Facebook owes a great deal to its early angel investors and has demonstrated limited capacity for earnings beyond simple advertising.

Whether or not the lawsuits and claims have merit, mindshare is a slow but steady road to profitability: just ask Google.

Facebook is also the interconnecting tissue of a huge ecosystem of third-party companies. These either trade directly through Facebook (such as Zynga, developer of Farmville and Mafia Wars), use Facebook for login credentials (e.g. including The Conversation), or rely on Facebook to reach far beyond their individual websites (e.g. Pinterest). Zynga's profits are down, and Facebook f-commerce appears to be an initial flop, but money is being made and the space is still new.

Not only do many tech jobs directly rely on Facebook, but increasingly so too do the marketing, public relations, and journalism professions as a whole. Certainly all of these professions are still trying to figure out just how to use the platform most efficiently. However, again, it is an empirical fact that this ecosystem exists and that it is in the interest of many to see that it remains healthy.

Mobile space is still in its infancy 

Just as the f-commerce space is new and fragile, there are concerns that Facebook has not shown much chop in the mobile space. Its early mobile interface was weak and has only recently started to improve. But the big concern for many investors is that Facebook has admitted that it does not earn much from mobile use because it has much more limited space for advertising.

This concern is clearly being addressed by the company, both through the acquisition of Instagramand the release of individual Facebook applications beyond the core: Messenger, Pages, and most recently the Camera app. The benefit of multiple applications over a one-stop shop, of course, is that advertisements can be delivered to each, as well as tailored to the particular uses. Doing this without angering users is difficult, as Twitter found out when it tried to include more advertisements, but mobile is still a new space.

Further, Facebook has enough cash now to treat mobile as a loss-leader as long as it can measurably demonstrate that it still has the majority mindshare. That being said, in this case Facebook probably should not look to Google, whose mobile offerings have been fairly weak and limited in terms of ad-space (at least before the beautiful new Google iPhone app).

Can the social graph be monetised in a way that retains user's privacy trust?

Third, while Facebook's much-vaunted Social Graph provides it with enormous possible resources for using behavioural data to target advertising, the company has not managed to find as lucrative a marketing process as Google Adwords. The highly personal nature of Facebook means that it faces much more visible privacy infringement possibilities than Google does with search.

Search is actually as much or more personal, but it does not appear as such to the average user because most searches are carried out, a goal met, and then it's on to the next. Facebook posts are more persistent—deliberately so, since the goal is for multiple people to see them whereas the goal for most searches is more individualistic. Again, though,monetising the social graph in a way that keeps users feeling secure is probably only a matter of time. And time, for now, is on Facebook's side, because it is by far the most visible manifestation of a “social network” in the public imagination.

I think that this is the critical factor that means that Facebook is too big to fail. Facebook may be a glorified self-organising and updating address book (REF), but it is one of the big three portals to the internet that is instantly recognisable to many users (the other two being search, usually Google, and email). Far more users treat Facebook as a place to share than Twitter or Google . Eben Moglen would rather they didn't, given the possibilities for surveillance, and Conrad Black believes the entire platform to be trivial beyond measure. While I have sympathy for both arguments, they fly in the face of the empirical fact that Facebook provides the easiest platform for personal connection and multi-media sharing across a range of contexts.

On this last front, though, it is imperative that Facebook pays attention to the users' need for trustable privacy. While Facebook has weathered many privacy storms, a disaster on this front is the most likely to lead to a loss of users, and with it all else. Mandatory data breach legislation is currently being supported by Electronic Frontiers Australia and other online user rights organisations. Facebook should be looking to build long-term user engagement by taking a leadership role in trustable privacy.

Sean Rintel is a Lecturer in Strategic Communication at University of Queensland. This article was originally published on The Conversation on May 31. Republished with permission.