A fellow journalist and professor steps out of the Facebook cloud to see what is happening. I hope I meet this guy.
All that glitters isn’t social media gold
13 January 2011 | By Mark Ritson
There have been times over the past seven days when it seemed every major business story was pointing to exactly the same brand. A global hoax spread across social networks that falsely claimed one of the biggest online brands was about to be pulled by its disillusioned founder. Even the entertainment news was affected when the National Critics Awards in America favoured the movie The Social Network, with four major prizes on Sunday evening.
It was Facebook, Facebook, Facebook.
But among all the media hype and billion dollar figures being bandied around last week there was a solitary voice of dissension. Douglas Rushkoff may not have as high a profile now as when he emerged as one of the late 20th century’s smartest media theorists 20 years ago, but for many of us who were in long trousers way before Mark Zuckerberg was even born, Rushkoff remains a prescient critic of media trends.
It was Rushkoff who anticipated the era of cyberculture ten years before it arrived. He coined the terms “viral media” and “social currency”. He was also bang on the money in predicting the decline of first Netscape and later the newly merged AOL Time Warner. And it is Rushkoff who is now distinctly suspicious of the long-term viability of Facebook.
In an article for CNN earlier this week, he was in no mood for equivocation. He believes Facebook’s current success will be short lived. Rushkoff argues: “We are witnessing the beginning of the end of Facebook. These aren’t the symptoms of a company that is winning, but one that is cashing out.”
What can he mean? Surely Facebook is about to become one of the world’s biggest brands? That’s certainly been the message from a stream of identikit investment bankers who have appeared across the national news networks over the past week to explain Facebook’s imminent global domination.
It has, after all, become the biggest single provider of display advertising in the UK with mega-advertisers like Procter & Gamble paying millions to advertise their brands using its pages. And if the rumours are true, Facebook generated £260m in profits for 2010 and has an even rosier outlook for the year ahead. Perhaps best of all, banking behemoth Goldman Sachs is trying to find a way to allow billionaire investors to take a $1.5bn share of the company – a deal that values Facebook at $50bn.
Don’t just count the money, follow it to the source. Businesses run on customers, not sales
So where is Rushkoff coming from? Let’s ignore the enthusiasm of Goldman Sachs to encourage its clients to invest billions of dollars in Facebook. Goldman is a brand that long ago sold its soul, its client based integrity and its once sacred 14 principles in order to make as much money as possible. That, at least, was the conclusion of the US government last year when it fined Goldman $0.5bn for selling collateralised debt obligations (CDOs) to its clients during the credit crisis while simultaneously shorting the very same investments for its own profit.
Goldman’s investment vehicle and its $50bn valuation of the brand should not be deemed as evidence of Facebook’s long-term prospects, but rather the bank’s short-term interest in making money irrespective of the investment in question.
But surely there is still no denying Facebook’s long-term business potential? It is here where Rushkoff differs from the bankers and investment analysts. The latter simply count money, but Rushkoff looks to the place where the revenues originate. Don’t just count the money, follow it to the source. Businesses run on customers, not sales. And Rushkoff believes that Facebook is building its business from a fundamentally unsustainable base.
It’s not that MySpace lost and Facebook won
Social media, as Rushkoff sees it, is just as temporary and fleeting as a nightclub or a party. At some point the movers and shakers are going to do just that and when they do everyone else eventually follows.
And the frightening speed with which the likes of Friendster and MySpace lost their lustre illustrates the paradox of making a long-term investment in any social media brand. The scare over the weekend that Facebook was going to close itself down in March, and the thousands of stories and tweets that erupted as a result, illustrate just how mercurial and transitory social media brands actually are.
Marketing Week, like every major media outlet, praised the savvy acquisition of MySpace by News International for £375m. Half a decade on the deal looks not only mistaken, but utterly devoid of any value whatsoever. And Facebook may be next. “It’s not that MySpace lost and Facebook won,” according to Rushkoff. “It’s that MySpace won first, and Facebook won next. They’ll go down in the same order.”
Who knows what we will be saying about Facebook five years from now. But if I had to believe anyone, my money wouldn’t be with Goldman Sachs. It would be on the media theorist who, so far, has an uncomfortable tendency of proving to be right.
Mark Ritson is an associate professor of marketing, an award winning columnist, and a consultant to some of the world’s biggest brands