I grew up in Michigan, the state that’s been probably hardest hit by the subprime crisis. The ripple effects of what it’s meant to every phase of the local economy have been profound. That got me to thinking that Facebook just might be the “cheap credit” equivalent that got the financial markets into their current state. So what does this mean? Well, because few people, if anyone, seems to be discussing the possibility that Facebook will be anything other than a smashing financial success, it’s worth thinking through what would happen to the web 2.0 economy if Facebook does not achieve its lofty financial goals. Hence the link between subprime and Facebook – I believe that Facebook and the belief of its ultimate financial success is one of the key things that’s continuing to prop up the web 2.0 market as it starts to get a bit long in the tooth.
1. If Facebook can’t make it work at scale, who will? The only other real ascendant company, YouTube, has already been acquired. Given the amount of energy being spent talking about Facebook in the blogosphere, there are relatviely few other companies poised to inherit that throne. If web 2.0 has already “jumped the shark” then any kind of stall or stumble from the industry bellweather might really put the whammy on this market.
2. Any demise or stall in Facebook would likely cast a chill over almost every social networking and community-oriented web 2.0 application. I have to believe that much of the enthusiasm for second-tier and/or niche social networking sites is the belief that the Facebook tide will lift all boats. If that tide stalls or shows any signs of slowing down, I’d wager that the sentiment might shift to being more negative on the space.
3. There is a tremendous amount of time and energy being spent trying to understand Facebook and the Facebook platform – what happens to all this time and energy if Facebook ceases to be a huge growth engine? There are a lot of smart people I know who are spending a lot of time thinking about Facebook. What would happen to all of this energy if the platform gets stale or sentiment changes? Would it find a new platform to love or just disappear?
I can think of three things that could happen which would put the inevitability of Facebook success in jeopardy
1. Slower traffic growth – If Facebook’s traffic growth were to slow, I’m sure that would be some cause for concern. However, I don’t think this is particularly likely to happen.
2. Monetization Stumbles – I continue to believe that Facebook needs its own monetization flywheel before it can really stand on its own as a long-term viable independent company. If history is any guide (eBay, Google, Amazon), the answer is some existing business model with a modern twist. If people lose their patience or the economy changes, the need to prove a financial model that works at scale could become more pressing. This seems like a long shot to me as well, especially given the ease with which the company has been able to raise large sums of capital from private sources.
3. Some exogenous event (scandal, lawsuit, etc) – The most likely thing to derail Facebook is some kind of exogenous event – a major scandal, lawsuit, or significant change in the macroeconomic environment. The rough thing about these kinds of events is that they’re very difficult to predict and there isn’t a whole lot you can do about them when they strike.
Things most often go wrong or sideways precisely when people stop worrying. And I don’t hear anyone (or many people) wondering aloud about what happens if things go wrong here. What do you think?