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Facebook's Summer of Fail

By Mike Elgan, 06-Aug-2012

The social networking sites' woes started with its IPO and have continued ever since.

Facebook's Summer of Fail, Mike Elgan, Columnist, Computerworld US
But the IPO and subsequent stock declines were just a prelude to Facebook's Summer of Fail.
Computerworld USMike Elgan, Columnist

Remember when Facebook was the company that could do no wrong? When all the attention and traffic and users were headed in droves to it? When founder and CEO Mark Zuckerberg was anointed as the new Steve Jobs?

Neither do I.

Facebook's Summer of Fail has shortened memories about the good times for Facebook, and focused attention on an uncertain future.

Facebook's IP Ohhh!

It all started with Facebook's clumsy attempt to become a public company.

Hoodiegate, as they called Zuckerberg's "road show," in which some investors concluded that the CEO was too arrogant to be trusted, got Facebook's long-anticipated IPO off to a bad start.

The May 18 IPO itself was a train wreck.

Since then, Facebook's stock price has dropped to nearly half, and investors are not optimistic about the company's financial future.

TIME Magazine is asking if it's time for Zuckerberg to resign. (As if losing more than $7 billion in personal net worth wasn't punishment enough.)

But the IPO and subsequent stock declines were just a prelude to Facebook's Summer of Fail.

A high-profile developer named Dalton Caldwell wrote an open letter this week, picked up by the media, accusing Facebook of hardball bully tactics.

Facebook is losing users (and using losers)

Facebook's greatest asset is its user base, which has historically grown at a breakneck pace and which has been assumed to be composed of rabid Facebook fans who love the platform. A large, growing and enthusiastic user community is the entire basis for any optimism about Facebook's ability to make money.

But last month, the American Customer Satisfaction Index (ACSI) released a report showing that Facebook fell 8% from last year to a score of 61 on a 100-point scale, the lowest-ranking social network for customer satisfaction by far. Worse, new rival Google+ scored highest with 78.

Meanwhile, Capstone analyst Rory Maher reported last month that Facebook is bleeding users, dropping by 1.7% in the US over the last six months.

This week, the company reported to the U.S. Securities and Exchange Commission that about 83 million Facebook user accounts are duplicate, misclassified or " undesirable."

From a business perspective, perhaps the most devastating developments this summer are widespread questions about the effectiveness and even the legitimacy of Facebook advertising.

The trouble with Facebook ads

The BBC set up a Facebook page for a phony company it invented called VirtualBagel. The VirtualBagel page provided almost no information, and no solid basis on which anybody might "Like" the company or its page. The BBC advertised it on Facebook, gaining more than 3,000 "Likes," mostly from Egypt and other places outside the U.S. and U.K., and often from clearly fake Facebook users. The BBC concluded that the "Likes" you buy via Facebook advertising is mostly junk traffic by people who don't buy things and who don't care or even know what they're liking.

A startup called Limited Run posted a scathing commentary about why they intended to leave Facebook. The post said their own analytics revealed that 80% of the Facebook advertising clicks they were paying for were from "bots," not humans.

They also changed their company name, and asked Facebook to reflect the change on their Facebook page. But Facebook allegedly told them that in order to change their name on Facebook, they would have to spend $2,000 more per month on Facebook advertising.

The company has since removed their complaint from Facebook, which they explained in a company blog post. Apparently, the small company found the tsunami of press attention overwhelming and distracting.

An investigation by Facebook found no evidence of the click-bots claim, but hasn't yet issued a statement on the name-change claim. The details about the dispute remain unclear. But even if Facebook did nothing wrong, it was a widely reported story that damaged the company's reputation.

The bad news keeps piling up

Although it's been a horrible summer overall, it seems to have gotten even worse this week.

The company is having trouble with developers. A high-profile developer named Dalton Caldwell wrote an open letter this week, picked up by the media, accusing Facebook of hardball bully tactics.

Google Senior Vice President Vic Gundotra wrote a widely circulated Google+ post that linked to the Caldwell screed, asserting Google's respect for developers and implying that Facebook has no such respect.

Facebook is also bleeding executives. Senior executives Katie Mitic and Ethan Beard announced their resignations this week, bringing the number of high-level departures since the IPO to three.

(Even Mark Zuckerberg's sister, Arielle Zuckerberg, and his brother-in-law, Harry Schmidt, husband of Mark's other sister, Donna, now work for Google, although somewhat accidentally. They both work at Wildfire, the social-marketing startup that Google just bought for $250 million.)

Facebook security is also a hot topic now. For example, several Major League Baseball Teams' Facebook pages were hacked this week.

To sum up: Facebook is having a tough summer, investors are losing confidence, users are losing interest and developers are losing their tempers.

Can Facebook rally? Who knows?

The important thing is that it's still very early in the social networking business. The leading company, the business models that work, the right mix of services, monetization and privacy -- all these things have yet to be determined.

And it's still true that Facebook has the home-court advantage: It's the only social network "mainstream" enough for you to assume that any random person on the street is likely to have an account. People are creatures of habit, and they won't leave en masse without a really good reason. The future is Facebook's to lose.

But can Facebook get its mojo back? Can they orchestrate an Autumn of Awesome followed by a Winter of Win?

Maybe. Either way, it's hard to imagine things getting any worse for the company than they are right now.

Source: Computerworld (US)

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