Despite 955 million active users and increasing revenues, the company has lost a third of its share value since its IPO in the spring. The exuberance that surrounded its IPO and overpriced its shares has worn off and investors are realizing that being big isn’t enough to ensure business success. Its latest earnings reports show the firm lost money, $157 million, in the second quarter on income of $1.18 billion.
Facebook’s challenges are symptomatic of a long line of
“successful” digital firms that are experiencing monetization problems, including
Yahoo, You Tube, AOL, and Twitter. Despite large numbers of users globally, they
still lack effective business models to generate revenue levels congruous with their
size. They may provide great communication functions for users, but they are
not transforming very well from innovative users of technologies to highly
profitable commercial enterprises.
Part of their challenge is that they have to focus so much
effort on non-paying customers and those customers think of the services as
personal communications—making them resistant to many efforts to monetize them.
This problem has long plagued traditional media, but they are conceived as mass
rather than personal media and have been around so long that many people are
now used to a certain level of commercial exploitation. They also have a proven
track record of return on advertisers’ investments that digital media have not yet
been able to deliver for many types of advertisers.
Large digital players will continue to evolve and can be
expected to improve their financial performance over time, but it will take a
good deal of innovative thinking about the business rather than about the
technologies and social value of their services.
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