Monday, May 28, 2012

The Facebook Illusion

From Ross Douthat at the NYTimes.com:

There were two grand illusions about the American economy in the first decade of the 21st century. One was the idea that housing prices were no longer tethered to normal economic trends, and instead would just keep going up and up. The second was the idea that in the age of Web 2.0, we were well on our way to figuring out how to make lots and lots of money on the Internet. 

The first idea collapsed along with housing prices and the stock market in 2007 and 2008. But the Web 2.0 illusion survived long enough to cost credulous investors a small fortune last week, in Facebook’s disaster of an initial public offering....


Of all the major hubs of Internet-era excitement, Mark Zuckerberg’s social networking site has always struck me as one of the most noxious, dependent for its success on the darker aspects of online life: the zeal for constant self-fashioning and self-promotion, the pursuit of virtual forms of “community” and “friendship that bear only a passing resemblance to the genuine article, and the relentless diminution of the private sphere in the quest for advertising dollars.

But even readers who love Facebook, or at least cannot imagine life without it, should see its stock market failure as a sign of the commercial limits of the Internet. As The New Yorker’s John Cassidy pointed out in one of the more perceptive prelaunch pieces, the problem is not that Facebook doesn’t make money. It’s that it doesn’t make that much money, and doesn’t have an obvious way to make that much more of it, because (like so many online concerns) it hasn’t figured out how to effectively monetize its million upon millions of users. The result is a company that’s successful, certainly, but whose balance sheet is much less impressive than its ubiquitous online presence would suggest....


It’s telling, in this regard, that the companies most often cited as digital-era successes, Apple and Amazon, both have business models that are firmly rooted in the production and delivery of non-virtual goods. Apple’s core competency is building better and more beautiful appliances; Amazon’s is delivering everything from appliances to DVDs to diapers more swiftly and cheaply to your door....

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Link: http://www.nytimes.com/2012/05/27/opinion/sunday/douthat-the-facebook-illusion.html

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