July 22, 2010 at 5:20 PM ET
Is Facebook the next MySpace or the next eBay? One is the butt of every flash-in-the-pan Internet joke, the other a cash cow that survived terrible growth pains by achieving 800-pound-gorilla status. Which way is Facebook headed?
Recent reports suggest Facebook is a customer service nightmare, a cesspool of fraud, a privacy nightmare and a breeding ground for computer attacks. It also might be losing ground in the critical 18-44 U.S. demographic.Could Facebook exhaustion be setting in?
On the other hand, the firm just announced it has passed an astonishing 500 million members, and nearly every other meaningful measure -- older Americans, time spent on site, international growth -- makes Facebook look like a freight train that can't be stopped. Here's just one data point to reflect on: Facebook users spend one of every three minutes they use the Internet clicking around Facebook.com, according to market researcher Morpace.
Still, you don't have to look far to find user dissatisfaction, and the University of Michigan's Customer Satisfaction index released this week indicated that Facebook frustration has reached depths not seen since U.S. consumers tried getting cable TV installed on a Saturday.
There are signs that all this negativity is taking a toll on the service beyond the "Facebook vacation" your formerly over-sharing friends seem to be taking on a regular basis. Third-party research firm InsideFacebook.com studies demographic data provided by Facebook's self-serve advertising tool and spotted a big surprise earlier this month: Facebook actually lost more than 100,000 U.S. female users aged 26-34 during June and suffered a net loss of members across the 18-44 demographic.The loss was offset by equal jumps in users in the 45-54- and 13-17-year-old brackets.
The data is inconclusive, however. It represents a slice of time far too small to establish a trend, according to InsideFacebook's Justin Smith.
"We would qualify conclusions based on this data until we see if this continues," he said.Last summer, he noted, the number of18-25-year-old users also dipped briefly, though last month’s drop was significantly wider.
The losses are relatively small when considered on a percentage basis, and could be explained as a simple case of market saturation.There may be few 25-year-old U.S. adults who have yet to try Facebook.
The data is hard to ignore, however, and it's obvious to any Facebook user that the site is getting older quickly.As co-founder and CEO Mark Zuckerberg muses out loud about a future initial public offering, the site can't afford to lose its "cool" among18- to 44-year-olds, because that's where the money is.
In the late 1990s, eBay.com was similarly under assault from numerous directions. There were endless stories of massive fraud, and loud user groups formed to protest the firm's alleged cavalier attitude toward crime. ID theft became rampant as user IDs were stolen in bulk. Lawsuits over counterfeit products from big-time brands like Tiffany followed. So did endless complaints about the website's software tools and auction fees.Eventually, eBay problems became the No. 1 complaint in the Federal Trade Commission’s Top Ten Dot Cons. Meanwhile, auction site imitators circled the blood in the water.
Today, eBay is worth $27 billion and has to be considered on the short list of true dot com successes. What happened? Two things:
First, eBay began taking the complaints seriously. It hired well-respected Howard Schmidt (now White House cyberczar) to run security and scare off some of the scam artists.
Second, eBay never really had a serious competitor. EBay got so big so fast that it was the only game in town.Like Xerox, eBay because both a noun and a verb, as in "I'm going to eBay this Tiffany lamp we never use."If you wanted to auction an item, or find one, you had to use eBay. If you didn't, you'd never get top price or find that rare item.
There was no fighting the 800-pound gorilla.
Facebook owns this same advantage. To a large segment of users, Facebook is the Internet.They have abandoned regular e-mail for Facebook mail. They have abandoned news websites and instead just check their friends' wall feeds for news.Yes, there are competitors, but they aren't ubiquitous.Search Facebook for a new business associate or that guy you met at a bar last night and you are nearly certain to find him there.Not so with other sites.
But eBay had an advantage that Facebook does not: financial incentive. If you are a seller, you need the largest audience to get the best price. The more bidders, the better the bidding.Even if you hated eBay's fee increases, you would never go to another site and suffer lower prices.
Facebook users suffer no such "switching costs."The second something cooler comes along, they are financially free to leave.
And that's why Facebook must be ever vigilant about its MySpace problem. At one time, MySpace seemed unconquerable, until grown-ups realized it was uncomfortably similar to those Girls Gone Wild videos, overrun by creepy guys ogling young women who covered the site with ill-advised photographs. Ultimately, it was ruined by its reputation.
Facebook’s long-term success relies on whether it follows eBay's lead and takes fraud and other complaints seriously. The site has a nearly hypnotic hold on users, giving it wide latitude to make mistakes. Wide, but not infinite.Eventually, those 18- to 44-year-olds can find something else to do.
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