Facebook RIP Pt 1

May Facebook's soul rest in peace.

A high percentage of users are reported quitting their behavior to regularly logging into the social media platforms like Facebook (FB) and Twitter (TWTR), and there are also many wellness-related articles endorsing the idea for both mental and physical benefits. Furthermore, a research study by the University of Bamberg and the University of Frankfurt in Germany supports the idea that overload social media could lead to emotional exhaustion and consequently induce the quitting behavior from social networking site's user. Put aside user's psychological withdrawal, Princeton Research says FB is impending doom comes from its growth curve to that of an infectious disease and losing 80% of its peak user base within the next three years in 2014. "Ideas, like diseases, have been shown to spread infectiously between people before eventually dying out, and have been successfully described with epidemiological models," the authors claim in a paper entitled Epidemiological modeling of online social network dynamics. In 2010, after Facebook for the first time updated its controversial user privacy policy, whereas one of dozen criticisms received in its thirteen years history, there were many user concerns decided to deactivate their account (#deleteyouraccount). Upon all those controversies (e.g. politics, religion, sex, etc), the fake news problem on FB during the post-election of 45th US President was the most being criticized, and accused of impacting the election result today, in fact, the truth1 was its algorithm prioritizes “engagement” and fake stories didn't. In regardless, FB has already lost their credibility and reputation substantially to the public, and more than 11M youngsters have actually fled FB since 2011. At the FB 4Q16 earnings conference call (Feb 01, 2017), CFO David Wehner reiterated his comment in last three consecutive quarters that FB "continue(s) to expect ad revenue growth rate will come down meaningfully" after mid-2017. Adversely, in after the 3Q16 earnings conference (Nov 02, 2016), FB admitted itself "messed up the ad metrics" causing its stock dipped the same day. But why did the miserable happen again and again on them? We first have to look back the history of social networking for some clues.

The social networking chronicle can date back to the dawn of 21st century began from a company named America Online (AOL) founded by Bill von Meister in 1983, first called Control Video Corporation (CVC) that sold subscribers modem and its Gameline service to temporarily download video games. That's as well the beginning of online game streaming business model. Unfortunate that the company went nearly bankruptcy. Therefore, in 1985, Jim Kimsey (the first Chairman of AOL) was brought in as a manufacturing consultant, along with Steve Case (the first CEO of AOL) consulting in marketing, to rebuild the company from the remnants of CVC as Quantum Computer Services to sell a dedicated online service for Commodore 64 and 128 computers. Their new direction was very successful and spontaneously changed its service name to America Online. Then, further expanded their service for Apple II, Macintosh and IBM-compatible PCs, and promoted to people unfamiliar with computers in 1989. Throughout the early 90s, AOL continued sweeping down its rivals such as Prodigy, CompuServe and GEnie. Following in Dec 1996, it amended its billing cycle from hourly to a flat fee $19.95, stimulatingly grew its user base to 10M people. AOL ad interim became the key newsfeed of Americans in Presidential Election '96. By 1997, about half of all US households with internet access had it thru AOL. Their ambition didn't just end there. It relentlessly acquired companies, including eWorld and Netscape, to dominate online service internationally with more than 34M subscribers (out of 248M internet users worldwide, 4.1% of world population) - A full decade-long of affluence in Internet history. The breaking point henceforth began for AOL when it merged forming the AOL Time Warner, Inc., and their culture conflict would soon cause AOL's business model to tumble. In 2002, Jonathan Miller was hired to be the new CEO decided to drop "AOL" from its corporate name and retired its full name "America Online" following in 2006. To bolster its subscription base, a variety of services and software, included Norton Antivirus, anti-spyware, firewall and phishing protection, was bundled. Even though more value added into their subscription service, but AOL couldn't defeat the attack of broadband services like Comcast, Verizon-MCI and SBC-AT&T and free email providers like Yahoo and Microsoft Hotmail. Twenty years after the birth of America Online service, its user number dropped dramatically to 10M people only. Its executive officers unremittingly shuffled in later 2000s. From 2009 to 2015, the company attempted to captivate the "AOL" name again and transform into a digital media provider for the return of its saga, but it never performed. In June 2015, a surprising twist that Verizon thereafter secured its acquisition of AOL and announced its intent to acquire the core business of Yahoo, once a giant of the Worldwide Web directory.

Before the wider adoption of MySpace (2003) and Facebook (2004), a social networking platform named Friendster (a portmanteau of "friend" and Napster) was founded by a Canadian computer programmer with a $12 million investment by Kleiner Perkins Caufield & Byers, Benchmark Capital and private investors, and momentarily adopted by 3M users with first few months in 2002. It was based on "Circle of Friends" social networking technique performed the old "Six Degrees of Separation" to connect individuals in virtual communities. Its instant success and ability to outvie the Windows Live Spaces (now merged with Wordpress) and Yahoo! 360° was rapidly molded to a hot buzz feed among different print publications like Time, Vanity Fair and Entertainment Weekly. Valued at $53M in 2003, Friendster refused the $30M buyout offer from Google (GOOG) to stay private. But the recapitalization didn't cease there. The board moved its founder Jonathan Abrams from CEO to a powerless Chairman role after FB launched in 2004. In next 4 years time, the company has replaced five different CEOs whilst its member base was grown 35X to 115M. Facing the domestic risen of FB and a significant traffic decline in 2009, Friendster was, without any option, sold to one of the Asia's largest internet companies and shifted focus to Asia markets like Indonesia (It remained notably popular in there thru 2012). Towards the end, the unfortunate fate has put the company shuttered in 2015 after it discontinued all user social network accounts and failed to reposition as a social gaming site.

Ahead the prosperity of the dark FB empire, MySpace was once the conqueror of the entire social networking landscape from 2005-2009, surpassed GOOG as the US most visited website in 2006 and received 76%+ of all US social network traffic in 2007. Today, Millenials don't likely sign up the MySpace anymore, but in the day of yore, registered members reached its peak with more than 300M (vs only 20M visitors per month today). Their story was all started in Aug 2003 from several eUniverse employees saw the business potential of mimicking the Friendster's social networking features to build a better scalable website. Overseen by the eUniverse CEO, breathing the life of 20M existing email subscribers and resources provided by the parent company, MySpace - a free service for online storage and media file sharing - promptly gained tractions among teens and young adults. In Feb 2005, eUniverse CEO took noticed of the rising star Facebook and talked with young Mark Zuckerburg about an acquisition, but the $75M asking price by FB founders was being rejected. Not for long, the media tycoon Rupert Murdoch's News Corporation eyed on this gem and beat out Viacom to auction off the social media site for $580M investment to prime the pump of advertising traffic (Spam 2.0) to its media empire. That's also when the first dominant social media unicorn started tackling a breakdown, yet valued at $12B (2007) with 150 million registered users. The core problem was that MySpace's portal strategy continued solitarily building around entertainment and music audience, on the contrary of FB Open Graph API created developers open opportunities to build applications and content. Under the intensified pressure from FB and TWTR stealing its users, a series of "dizzying" in-house developed features, such as an instant messaging, a classifieds program, a video player, a music player, a virtual karaoke machine, a self-serve advertising platform, profile-editing tools, security systems, privacy filters, Myspace book lists and many more, was released without prior testing or designed without thorough refinement, which iterated many loyal members and caused a sizable loss of membership. In 2008, FB eventually overtook MySpace in unique visitors ranking. With a $1B high advertising revenue target driven by New Corp., more poor quality ads placements (e.g. "Rotten teeth ad") were reluctant of their user experience ("It's an eyesore for users") squeezed into the already-cluttered web portal whilst FB introduced a new clean design to enchant their users. Around the same time, vandalism, phishing, malware and spam had surfaced, whereas a dire problem MySpace failed to curtail. The volatility of this social network sparked a massive migration of its teenage demographic to FB in which started strong with 18-24 college students. Missed its aggressive revenue goal in 2009, MySpace's executive team rumbled down and departed. Its workforce was axed from 1,600 to 1,000. Attempting to refine itself as a social entertainment site, it contrarily lost 10M users in one month between Jan and Feb 2011, and its traffic plunged from 63M to 37.7M unique US visitors (a 44% traffic decline), which spawned advertisers unwilling to commit to long-term deals with their site. Frustration was written all over the face of Rupert Murdoch. The MySpace investment was being mismanaged "in every possible way" and called a "huge mistake" by the Chairman of News Corp. himself, thereby it was put on sale and later purchased by Specific Media Group and Justin Timberlake for a merely $35M. Then, it has undergone a couple rounds of downsizing reduced its staffs to 200. In 2012-2013, under new management, the site's layout went redesigned and relaunched to "bridging the gap" between artists and their fan bases. Lastly, it collapsed and bought by Time, Inc in 2016.

From AOL to Friendster to MySpace, their paths shared some common traits in failure: Founder's ownership control, Poor management, Failed to retain youth audience, Social problems solving, Misplacement in users experience and Timing. Now, the question is whether FB can resolve all these radical issues, break the curse of social networking lifecycle, and avoid the Innovator's Dilemma, likewise the new challenger. (CONT.)

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REF:

1. Social Media and Fake News in the 2016 Election (by Stanford University)

2. Facebook by the Numbers: Stats, Demographics & Fun Facts (2017)

3. By the Numbers: 180+ Interesting Instagram Statistics (Dec 2016)

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