Facebook Is Going To Be The Next Big Thing. Again.

This is the first part of a three-part post series, trying to analyze the future of social media and the web. In part I, we examine what tools Facebook has to make it a dominant force on the internet and in our lives. In part II, we will explore the battlefield between Google and Facebook and see the different tactics they deploy in taking over the internet. In part III, we will try to see into the future and I’ll make some wild claims about Twitter – and try to prove them too. Stay tuned.

Facebook’s Old Business Model Failed

Google created a lucrative business of ad placement. They make a gazillion dollars in ad revenue. In Google’s wake, there were a slew of companies trying to do the same thing. For a while, ads were the business plan of the internet. Only, it didn’t work.

It takes huge amounts of clicks to make ads a lucrative business plan. In order to get these clicks, you need a huge customer base. And even then, it doesn’t work. Facebook has a huge customer base and it places ads on every page, however their ads are not as effective as Google’s. They’re just not bringing in the big bucks.

Why is that? For starters, people don’t use Facebook to buy things. It’s much easier to sell something when you are addressing a person with buying intent. When I want to buy something, I go to Google. When I want to hang out, I go to Facebook. What ad can be relevant to me when I’m chatting with a friend?

For a moment it seemed a rather bleak outcome. If Facebook won’t become a huge company, it will wade quietly at the sidelines of the Internet, until some new contender will wash them out. I, on the other hand, think Facebook hasn’t even started affecting our lives. I think Facebook is leading a revolution on the internet, and it will make huge piles of money doing so (I’ll have to discuss my business philosophy sometime, to explain why I believe consumers gain if there’s a company that’s making a lot of money).

My Internet Identity

The first thing Facebook has, is a good grip on my internet identity. Using Facebook Connect, I can easily log into websites, without having to remember multiple usernames and passwords. The more you use Facebook Connect, the more powerful Facebook becomes. The reasons are twofold:

  1. Switching Cost – Think of what will happen if Facebook disappears. How many sites will you lose access to? How much would it cost you to reconstruct your digital identity? On this front, Facebook has some competition from the OpenId Alliance, however, OpenId is just as broken. I use my Google account for many things, and if that somehow breaks, I’m done. There are some services that really hold us by the huevos. I’d pay to keep them up (Gmail literally contains my life!), and the more I use any one service the more power it has over my digital life.
  2. Data Integration – the reason Facebook Connect is better than other services is the integration with the Facebook Feed. The more I use Facebook, internally and externally, the easier it becomes for me to control my digital persona. It all streams into a single page, my Facebook Feed, where I can interact with everything. It’s easier for me, because I don’t have to go and check multiple sites. It’s powerful for Facebook, because they know so much more about me than anyone else.

So, Facebook will own my Internet Identity, and bring it all into my feed.

My Personal Life Line

To date, Facebook has the best social feed implemented. Here’s why:

  1. Inline Comments – the fact that each item has it’s own comment thread is much easier to follow than just having a bunch of status updates. Yes, Twitter, I’m talking about you. Google Buzz has this feature right. Allowing us to discuss items inline is what social conversation is all about. I find it much easier to follow and contribute to these conversations. On the business side, Facebook has a better chance of learning what is loved and important to each and every one of us.
  2. Separating Live From Interesting – The default feed on the Facebook homepage is a combination of new and interesting items. Interesting is determined simply by the number of ‘Like’s and comments. New items are randomly inserted as well, giving new items a chance to become interesting. Crowd sourcing interest is much easier than trying to build algorithms that automatically filters these streams (the way I imagine the Google Buzz engineers will try to solve the problem). The signal to noise ratio is very good, and most of us don’t need real time feeds (more on this point in part III).

One thing I am missing on Facebook is asymmetric following. Some people use social media to post interesting links and news. They are not my friends (yet), so I just want to follow them Twitter and Buzz style, and see what’s new and interesting. In the Facebook lingo, I want to become a fan of a user, not just a page. There are many privacy issues to be resolved, but this single change can render other social networks redundant.

My Wallet

Facebook is deploying an online payment system. This is extremely important. Since Facebook owns my Identity and know me so well, they can prevent fraud much better than any other service provider. It won’t be enough to open a Facebook user to use this system. You will also have to be an active user.

With this, Facebook can protect users and businesses better than the competition, while maintaining lower commissions. They also have a larger user base than PayPal, the strongest competitor in this area. Facebook can turn into the number one payment system over night. This is a very big deal.

Coming Full Circle

It all ends back in the Facebook homepage. You’ve rated a product on a shopping site, while using Facebook Connect? It’s in the feed. You’ve bought something using Facebook Credit? It’s in the feed. Organic ads in the feed are what no-one was able to offer before without sounding sleazy and spammy. Marketers are going to love this. Sellers will jump head over heels to get a piece of this action. This will drive Facebook Connect and Facebook Credit to new heights.

With these changes, buying intent is coming to Facebook. Looking for a new dish washer? Why not search Facebook for reviews by your friends? Oh, wait. There’s also a relevant ad for that. Of course, Facebook has to upgrade its search capabilities to get this working properly, but it only has to work on the Facebook Feed, so it’s easier than trying to control the internet like Google does.

So, Identity, Feed, Wallet, Ads and Search (with buying intent). It’s not so obvious that Google will be able to dominate the internet for much longer. It’s going to be an interesting battle, and this is exactly what we’ll discuss in Part II: The topology of the New Internet.