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6 Facebook Problems Need Fixing

After the IPO hoopla, there's work to do. Facebook might have 845 million users, but that does not mean building a business out of user attention will be easy.

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When Facebook goes public in the next few days, the company could end up being valued at over $100 billion.

Facebook expects investor interest will be high: Two days ago, the company increased the total number of shares it will offer and increased the share price range from $28 to $35 per share to $34 to $38 per share. According to its most recent SEC filing, Facebook will offer over 421 million shares.

The company certainly has a lot going for it: 845 million users, high user engagement compared to competitors, rapidly growing revenue, and a strong developer community.

But it faces a number of problems, some of its own making.

1. Trust. Users don't trust Facebook. According to an AP-CNBC poll conducted earlier this month, 59% of respondents "say they have little or no faith in the company to protect their privacy." Only 13% of Facebook users say they trust Facebook completely or a lot to protect their data.

[ What are Facebook's most valuable technologies? Read Facebook's 11 Biggest Technology Bets. ]

When Facebook settled Federal Trade Commission charges that it deceived consumers with its privacy claims last November, CEO Mark Zuckerberg accepted blame. "I'm the first to admit that we've made a bunch of mistakes," he wrote in a blog post. "In particular, I think that a small number of high profile mistakes, like Beacon four years ago and poor execution as we transitioned our privacy model two years ago, have often overshadowed much of the good work we've done."

Facebook will have to keep working to convince users that it can be trusted.

2. Regulation. Having managed to convince users that sharing could somehow co-exist with privacy, Facebook still has to worry about government regulators. The European Union is presently considering revised data rules that would affect Facebook and other companies. The rules include a "right to be forgotten. To comply, companies would have to respond to requests to delete customer data and would probably incur additional costs. In the U.S., Facebook faces 20 years of privacy audits and an abundance of legislators and other legal officials ready to hold hearings or open investigations when controversies arise. And in China, a highly desirable market for many tech companies, Facebook is banned.

3. Ads. Facebook is an advertising company. Forget the social jargon for a moment. Facebook might use terms such as "Sponsored Stories," but it's really talking about ads. And ad companies succeed when their ads produce results.

Unfortunately, Facebook's ads don't work for everyone. GM just told the Wall Street Journal that it plans to stop advertising on Facebook. Apparently, the $10 million GM spent on Facebook ads didn't help sell cars. On a smaller scale, a pizzeria in New Orleans recounted a similar experience in a recent NPR blog post. The pizza restaurant saw a $10 return on its $240 ad purchase.

Facebook has counterexamples. It notes, for instance, that CM Photographics generated almost $40,000 in revenue directly from a $600 investment in Facebook ads. However, "works sometimes" isn't the sort of slogan that entices ad buyers. If the odds of generating a return are significantly less than 50%, you might be better off gambling your marketing money at a casino.

4. Skepticism. Among those who responded to the AP-CNBC poll, 46% believe Facebook is a fad. That's three percentage points more than the number of respondents who believe Facebook has staying power. The skeptical majority might be easier to dismiss if Facebook hadn't agreed to pay $1 billion for Instagram, a startup with no revenue but 30 million enthusiastic users. That's not the move of a secure company. It looks more like a defensive effort to co-opt a potential competitor and reinvigorate a user base that doesn't tune in as often as it used to.

5. Value. Three out of 10 Americans surveyed by AP-CNBC say they visit Facebook daily. But for what? Entertainment? Self-promotion? Socialization? That's nice, but there are plenty of places to get that.

It's different for Apple, Google, and Microsoft. For the average computer user, hardware running an operating system from Apple or Microsoft is essential, as is a search service from either Google or Microsoft.

Apple, Google, and Microsoft all offer software and services for productive tasks and for personal convenience, such as online storage. They offer services people will pay for, even if they subsidize some of them with ads in order to offer them for free.

Facebook gives away plenty of value, just not the kind of value that people want to pay for. And that needs to change. Facebook needs to offer Dropbox-style file storage or other services that create lock-in and meet business needs. Facebook's control of users' contact data isn't enough to keep users interested if the novelty of sharing wears thin.

6. Mobile. Apple has iOS and Safari. Google has Android and Chrome. Microsoft has Windows Phone and Internet Explorer. Facebook has no operating system or browser to guarantee its presence on mobile phones. The company depends on apps and the mobile Web. And that could be dangerous, particularly because Facebook's mobile apps aren't very well regarded.

Google already has greatly increased the number of Google+ users through Android. Apple is bound to try to improve its social competency. And Microsoft could get less friendly toward Facebook if it can convince enough people to buy a Windows Phone.

Facebook CEO Mark Zuckerberg is aware of the problem at least. During the company's IPO roadshow, he emphasized that his number-one priority is improving Facebook's mobile apps.

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User Rank: Apprentice
8/14/2012 | 6:35:22 PM
re: 6 Facebook Problems Need Fixing
I reported this privacy issue to Facebook some time ago and they have not addressed it so I'm releasing it to the public to get their attention.

The issue is that if you make your friending activity (who you become friends with) private on your timeline your friends can circumvent this by creating an Interest List and adding you to the list. If they do this the interest list feed will identify who you friend and when totally circumventing the setting on your profile.

Now hopefully Facebook will get this fixed.
User Rank: Strategist
5/19/2012 | 5:13:51 PM
re: 6 Facebook Problems Need Fixing
What Facebook has is a huge community ready to be tapped for various purposes. For example, I participate in a few different discussion type forums that have gathered on Facebook. Why do they gather on Facebook when its forum-like aspect is so horrid? Well, because the people are already there. It's easier to create a group on Facebook, then just get people to join it, than to start an independent community with a forum, and get folks to come make an account.

But, I agree that I doubt the advertising angle will really work that well. I've clicked on ads when I've Google'd things. I'm not sure I've ever clicked on an ad while using Facebook; possibly once or twice. There is a bit of potential there, as I'm sure some people do... but I think you're correct that it isn't why people are there. It isn't a good target audience.

Regarding the privacy concerns, I completely agree. People seem fine with that trade-off and don't want to invest the time to really care. Though as time goes on, this won't just be a Facebook problem. Facebook is just one of the current biggest problems. (One really big problem I currently see, security wise, are all the websites and blogs using Facebook login. It is training people for a phishing attack. You just popup a Facebook login dialog and people just hand over their Facebook name and password. This is a really bad trend security-wise. And, besides that... why would I want to use Facebook as some kind of universal login? Consider what this adds to your 'tracked' scenario you wrote about.)

I strongly agree with your closing statement. It isn't a fad in the sense that people normally use that term. I'm sure it will be around for quite some time until some 'next big thing' comes along and people start to forget about it. I suppose that's kind of a long-term fad. But as for the actual value of Facebook, I'd be cautious. I sat in on a number of 'investment' meetings for clients in the mid-late 90s that were touting the "can't lose" mantra over internet 'clicks' and how valuable they were; all the experts agreed! (Well, except for me and many others who weren't being listened to. I saw that train-wreck coming miles away.) It was only valuable to a certain point (within fairly traditional marketing metrics), and beyond that, it was just valuable for the ignorant caught up in the excitement... and as we all know, that additional 'value' went away quite quickly.
User Rank: Strategist
5/17/2012 | 7:12:51 PM
re: 6 Facebook Problems Need Fixing
How about actually making some of the more important aspects of it..... WORK! For example, if you comment on more than a couple items, it is nearly impossible to find them later on. Often notifications don't lead you back to the actual note you commented on. Any basic forum-board type software works FAR better than Facebook. Unfortunately, many use it in that manner.

Or, take something like basic UI problems. No FB, we DON'T want the return key to send the post. Option-return to do a new paragraph... seriously?!? At least the actual layout of the site is starting to get a bit more coherent than in the past, but it still has a long way to go.

Essentially, the initial social-networking concept was good, but many of the features that have been tacked on over the years have been very amateurish. They need to hire some designers and planners to actually think through what the coders are working on, some QC folks to make sure things actually work, and some managers to push these folks to get this stuff done.
User Rank: Apprentice
5/17/2012 | 6:43:34 PM
re: 6 Facebook Problems Need Fixing
Facebook for iOS app is one of the worst app I've ever seen.
User Rank: Apprentice
5/17/2012 | 3:58:01 PM
re: 6 Facebook Problems Need Fixing
"Facebook gives away plenty of value, just not the kind of value that people want to pay for"

No, this is the whole misconception. Facebook has no value. It's nothing more than people yaking, showing off, and screwing around with games and ads.
That stuff is all fine as long as it's FREE. Getting people to actually pay in order to waste away their day messing around online is another story.

It's just about money. Facebook can only exist as a company with money coming in, and the only way money comes in is from ads. And people get tired of ads and not really getting anything of value in exchange for them.

Their security concerns are less of a problem than the article thinks. People on Facebook are by and large not smart enough, or not willing to face up to the fact, that their privacy is completely pillaged when they use Facebook. They happily put information about where they go, what they do, who they associate with, including all that data about their little kids!!! And they don't want to think about the fact that every creep, miscreant, and pervert on Earth is trolling Facebook pages just looking for suckers they can easily attack.
Would you put all that personal data in an envelope taped to your front door and just "trust" that somebody else would make sure that nobody is going to look in that envelope?
No? Well, that's what people are doing with Facebook.
If none of that scares people away, then nothing will. Facebook has no privacy and no security, and that doesn't seem to bother its users.

Honestly, I wouldn't say it's quite a "fad", but it's like television. It has had its "golden age" already, and just like television, people are simply going to go get tired of it and go on to something else.
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