Last week, analyst and founder of Ironfire Capital Eric Jackson told CNBC show Squawk on the Street that in “five to eight years Facebook is going to disappear in the way that Yahoo has”. Expanding on these comments writing in Forbes, Jackson predicts that Facebook will be “…not bankrupt gone, but MySpace gone”. Founded in MySpace 2003, MySpace has seen its userbase rapidly decine in recent years as a result of the growth of Facebook combined with its failure to innovate.
In the piece, entitled ‘Here’s why Google and Facebook might completely disappear in the next five years‘, Jackson writes how Facebook will face a tough road ahead as a shift to mobile happen. Common consensus in the industry is that mobile will be the ‘next big thing’ – especially given rapid smartphone uptake in recent years; a study last year by Google revealed that Smartphone uptake is now in excess of 50% in the UK. Jackson went on to say that “… Facebook loses money in mobile, and has rather simple iPhone and iPad versions of its desktop experience. It is just trying to figure out how to make money on the web – as it only had $3.7 billion in revenues in 2011 and its revenues actually decelerated in the first quarter of this year relative to the fourth quarter of last year.” To make matters worse – Jackson also notes how “…it has no idea how it will make money in mobile”. We spoke to Jackson in order to make some more sense of his analysis and predictions with regard to Facebook and its future.
The three generations of internet companies
In his analysis, Jackson speaks of three different generations of Internet companies.
- Web 1.0 consisting of companies founded from 1994 – 2001, including Netscape, Yahoo! AOL, Google, Amazon and eBay).
- Web 2.0 or Social (companies founded from 2002 – 2009, including Facebook, LinkedIn, and Groupon).
- …and now mobile (from 2010 – present, including Instagram). This is not referred to as Web 3.0 given that ‘mobile’ is generally differentiated from ‘web’.
Jackson told us that “The Web has been around for a little more than 15 years. The first generation was made up of portals. You build something big with lots of info and get traffic. Yahoo and Google are good examples. In 2002, LinkedIn a social networking website designed for professional networking and recruitment) was founded. Facebook came along in 2004. “
“This was the beginning of what some called Web 2.0 or what most of us would say was the ‘social’ generation. More recently this started with the founding of Instagram (a free photo sharing app that allows users to take a photo, apply a digital filter to it, and then share it on a variety of social networking services, including Instagram’s own) two years ago; we had purely mobile-focused companies who don’t even bother with their websites. They’re entirely focused on their phone/tablet apps. In my view the DNA required to be a successful company in each of these generations is different. “
“Therefore, it’s not surprising that the companies who have risen to the top of their generation when they’re born seem incapable of turning their back on that, and becoming equally successful in another generation to follow. The mobile generation has just started and I think it’s still wide open to see who will win.”
How, and why will mobile be the future?
So in what sense will mobile be this third generation? What kind of companies are on the right path? To that – Jackson told us “Instagram was the leader”. Continuing to say that, “…now that they’ve been acquired, history suggests their growth will be stunted as part of another entity (Editors note: see also, the acquisitions of Dodgeball and Jaiku and more recently Gowalla - incidentally, by Facebook too) rather than left to innovate on their own. “
Twitter are in a much stronger position than Facebook to win in the mobile era
“I think Twitter is an inherently mobile company. People forget that it started as an SMS messaging service. That’s in its DNA. Their website came much later and frankly it was pretty poor (in some ways it still is). I think they’re in a much stronger position to win in the mobile era compared to Facebook, whose DNA is as a big website. “
No one is thinking of a website at a good start-up these days.
“I think BuzzFeed is really the model for how news will work in the mobile generation. Viddy and SocialCam seem to be on the forefront of video for mobile. A VC told me a few weeks ago that all his investee companies were mobile-focused. No one is thinking of a website at a good start-up these days.”
We then asked Jackson – what would it take to be a success in this third generation? …to which he quoted what Mark Zuckerberg said 18 months ago, ”iPad’s Not Mobile…It’s A Computer…Sorry!”” It’s just another way to show a website.” Jackson continued; “I think this is fundamentally wrong. The best phone apps are the ones tailored to that unique form factor. “
“… but take a phone app and blow it up on a tablet and users aren’t satisfied. It’s not maximizing that tablet form factor. We expect better resolution and capabilities that we use with a tablet. The winning apps in this mobile generation will be maximized for our needs with our mobile devices. They’ll be inherently social – look how easy Instagram made it to share photos. They won’t just be replications of the way we used to behave with the PC.”
Google is at risk too – Search is a PC approach to information gathering
“This is a reason that I think Google is at risk. Search is a PC approach to information gathering. I think many will come to use Siri (Apple’s intelligent personal assistant and knowledge navigator which works as an application within iOS currently only on the iPhone 4S handset) for this in a mobile world (for non-personal data).”
Facebook just doesn’t have mobile in it’s DNA – this is its downfall
“So how exactly will Facebook struggle to progress on mobile, what is it lacking – and also how important is the ability to monetise the mobile audience? Jackson told us how “It goes back to the DNA comment.” “Facebook gelled as a company by creating a big website and then a bunch of fast-moving engineers to support that big website.”
The Hacker way. Hackathons. Mottos like “keep shipping” – these are all web concepts that apply more to a web company, than a mobile one.
“Their organisational culture stems from this formation of the company. Hacker way. (an approach to building software that involves continuous improvement and iteration) Hackathons. Mottos like “keep shipping” (keep continually releasing new iterations or versions of a software product). These are all web concepts that apply more to a web company than the way a lot of the mobile start-ups approach creating their companies.”
“Facebook has this culture baked in. They’ve culturally learned to look to Zuckerberg for approval. He’s told them that mobile’s not that important. An iPad is just another PC. Now, he’s probably had the fear of God put in him by how quickly his users are shifting to mobile, so I’m sure they have lots of plans for how to “solve” this issue. It probably – I would guess – that it involves buying lots of mobile companies (like Instagram) and creating their own mobile phone so they’re not just another app. “
History shows companies can’t ever really shed the skin of what they are. Facebook is still a web company, even if it bolts on 5 or 6 mobile companies.
“History shows companies can’t ever really shed the skin of what they are. Facebook is still a web company, even if it bolts on 5 or 6 mobile companies. The mobile founders will probably leave Facebook in a couple of years after getting frustrated working for Facebook management who they think just don’t “get it.” The pressure will now be on Facebook from Wall Street to monetize mobile (and their website) but that might not help create a winning new mobile app. In fact, it might hurt Facebook even more compared to the apps that other start-ups will come up with.”
No matter how smart Zuckerberg is, and how many cool mobile apps he buys, he’ll miss that one that will eventually grow to outshine Facebook
“No matter how smart Zuckerberg is, and how many cool mobile apps he buys, history also shows he’ll miss that one that will eventually grow to outshine Facebook – just as Yahoo missed out on the opportunity to buy Facebook and went on to be eclipsed by it.”
If Facebook, effectively is weakened – how could another start-up company ‘take on’ Facebook? What forms will its killer take? To this, Jackson explained that, “…any start-up is going to have no baggage, unlike Facebook. They’re going to start from the point of: “let’s make the best mobile app for X.” They won’t have any internal product people telling them they can’t do that because it conflicts with some other feature in the existing website. They’re unencumbered by the past.
What forms will its killer take? The next Facebook killer won’t look like Facebook initially.
The next Facebook killer won’t look like Facebook initially. Just like Facebook didn’t look like Yahoo. It will be really good in one popular mobile niche (the way Instagram was for photos). Its popularity will explode like wildfire on Twitter. Two years on, it will branch out into a couple of new product areas. All of a sudden, people will start to say: “Hey, maybe this thing will be a Facebook killer.” By that time, it will be too late for Facebook to do anything. It will be too popular and too expensive to buy.”
What happens if there comes a tipping point where most of your friends stopped using Facebook because they were too busy using some ultra-cool new mobile app?
Patrick Moorhead, an analyst with Moor Insights & Strategy, holds the opposing view that whilst of new services may come along – like Pinterest – people always need a ‘social home-base where all their acquaintances and friends are accessible on a single platform’ – making Facebook almost indestructible given the volume of users using it.
To this, Jackson tell us how “the world has become a much more competitive place – and faddish place.”
“One reason that so many people use Facebook is because so many of their friends use Facebook. But what happens if there comes a tipping point where most of your friends stopped using Facebook because they were too busy using some ultra-cool new mobile app?
What if Facebook becomes perceived as “yesterday’s thing”? We saw how quickly MySpace declined (as did Bebo in the UK). Facebook has nine times as many users as MySpace ever did, but I’ve been surprised since I started talking about my prediction of Facebook’s decline in five years how many people have emailed me to say “I’m so over Facebook.” These aren’t from Silicon Valley nerds. These are mainstream Americans. The heartbeat of Facebook.”
Should Facebook be working on their own mobile hardware? Should it be aiming for an acquisition of RIM, maker of the BlackBerry smartphone which has recently been the subject of much scrutiny resulting from uncertainty in the industry about it’s ability to compete with Apple’s iPhone or Google’s Android mobile operating system.
I would buy RIM if I was them
Jackson tells us that, “I would if I was them”, continuing to say that “I think RIM could be very interesting for them because they can offer very low priced messaging apps to their users. It will delay their demise, but I don’t think it will prevent it. It will also open up a huge can of cultural worms, as Facebook has no experience running a hardware company. There will be huge cultural clashes to come from this (and Google will experience this pain too).”
So does Facebook lack focus? What is Facebook’s core business model? “They did a big web-based social network better than anyone”, comments Jackson - “Unfortunately, this doesn’t mean they’ll automatically be able to create the best mobile-based social network.” and on criticisms that Facebook will fail as a result of it’s walled garden approach – Jackson cites Apple – who he describes as “doing pretty well as a walled garden”.
Despite how rapidly the Internet has developed, with a lot of volatility, why is it that many analysts and industry commentators are very conservative in their predictions? Why do many feel that Facebook will always be around despite the relatively short history of the Internet indicating that many Internet companies are unstable, fleeting ventures?
Wall Street was way too optimistic in pricing Facebook, Zynga and Groupon
Jackson has an explanation: “I think Wall Street was way too optimistic in pricing Facebook, Zynga and Groupon.” “All three of those companies should have come public at much lower prices”
“In terms of why do we think Facebook will stay around, I think it’s an inherent human bias. We take the present moment and assume that it’s going to be like this forever in the future. So, whoever is the big company of the day, we assume they will dominate in the future. We thought AOL buying Time Warner was brilliant. We thought General Electric was the model for how all companies should be structured. We thought all American companies had to act like Japanese companies. MySpace was the coolest company on the planet.
Stop drinking the Kool-Aid and start thinking sceptically
“It’s amazing to me that we don’t become more self-aware at how we’re so quick to drink the Kool-Aid and stop thinking sceptically.”