Synopsis: Facebook’s success will be defined by its transition to mobile. However, the company’s recent efforts show no philosophical adaptation or product direction toward a mobile-centric platform. The real question is whether Facebook and mobile are actually suited for one another. The source of this divergence arises from: the pattern differences of desktop vs. mobile social behavior, use case and access frequency; and incompatibilities between Facebook’s advertising and awareness oriented business model, and mobile which centers around local discovery.
Facebook’s success to date has been built by capturing the whole social graph; and the social network’s mobile strategy to date has been to recreate its desktop offering, merely in smaller versions. Never mind what it does to the company’s advertising revenue, the founding tenet of this premise is exactly what needs to be turned upside-down. Mobile activity is typically centered on a more intimate social “core”, not the “edges” of the social graph where it currently excels. Edge social activity only serves to convolute a clean mobile experience, and simple proof of this is Facebook’s current mobile app which is slow, unfriendly and requires too many steps.
Similarly, the display ads that generated revenues to date have rapidly decreasing utility. Facebook needs to reinvent its business model to make sense for how and where mobile is used, which happens to be all about local and real-time. Ads and likes don’t translate to local businesses, who prefer transaction-driving offers/deals rather than awareness-creating digital ads. Alongside mobile, users’ primary consciousness too is shifting to an expectation of such relevant value-added engagement.
Social Model Transfer?
Taking a step back, we know that all great companies must solve a basic common problem. While Facebook clearly provided value by connecting users and their social networks to the point of dominating our time online, the question has now become, “can Facebook equally dominate our mobile lives?” Facebook-friends exist in a distinct category as virtual friends on the “edge” of our social networks (they’re associated by 0 to 1 degrees but don’t necessarily translate into our real world). Thus once having caught-up with them, many of these friendships quickly devolve, much as in real life.
So, the all-inclusive social graph approach generates low-frequency and weak-form communications.
Conversely, mobile revolves around a more intimate set of close (or “core”) connections that produce high-frequency and strong-form interactions. An analysis of Pew Research data shows the average person in reality has a small number of people in their core circle (6.5 friends, 3.1 work colleagues, 6.4 family members, plus a handful of others). These people represent 66% to 97% of our average daily engagement activity on mobile (via email, calls, texts, and social apps) yet are poorly facilitated by Facebook, and our interactions with them simply don’t occur through that medium.
Facebook is caught at this crossroads, needing to evolve from mere entertainment factor (in particular one highly dependent on a rich desktop experience), to a functional and useful social utility accessed on mobile throughout the day. In fact, Facebook’s product set remains basically the same since the company’s founding 7-years ago. The initial attraction of having one’s whole social graph online now often does little other than stretch the limits of an acceptable signal-noise ratio. The average Facebook user has around 200 friends today, and as the social network continues to focus on building out the social network “edge” and attempt to work its way inward, it will only devolve into more trivial posts and mobile users will shift away.
Unquestionably the greatest underlying challenge in mobile for Facebook is creating a popular and effective product for social core use before a competitor does. Speed, screen real estate, and content richness are non-issues in a desktop world, and Facebook’s strategy in building its product has been to continuously add more content and features. Yet on mobile, this proves to be a fundamental stopping point. How do you fit the activities of 200 friends on a mobile device in a sensible fashion? With its slate of apps on the market, Facebook currently has nothing suitable for mobile use. It lacks this lite layer despite the acquisition of Beluga and the release of its Messenger, which are not different enough than the desktop version of Facebook, nor as simple, fast and reliable as MMS or even basic SMS.
“Edge” versus “Core” Monetization Opportunities
The edge and the core do not have equal value in real-life yet are treated with equal weight in Facebook’s social graph. What’s so important about this? Simple, the value of data implied. Core networks are naturally personalized for us, and are our most powerful reference for thinking, doing and buying, which in turn means the highest likelihood of being monetized (a restaurant recommendation from one good friend beats even 100 reviews from mere acquaintances.) Because suggestions and referrals from the core network are far more accurate and relevant, advertising succeeds best with inclusive data sets.
While edge graphs tend to be dormant, core inclusive graphs are dynamic. Because they’re dynamic, they’re much more action-oriented (i.e., transactional) and suited for mobile. Virtual communities are only monetize-able once they pierce the digital veil to the real world, and Facebook hasn’t evolved or matured from what effectively is “social entertainment” to more “social utility” around the core. It is now akin to a cloud-based social information hard-drive. While the social network may be learning how to parse its massive data and algorithmically identify core activity, it can never supplant inclusive data and direct interactions among users themselves. Algorithmically determining the core can never proxy actual life and thus will be doomed to be a failure, only surviving until an alternative becomes available.
On mobile, more often yields less. A further complicating factor when assessing Facebook’s chances to monetize on mobile is that it currently depends on serious bandwidth. While it’s well known that smartphones are rapidly becoming prevalent (representing about 32% of handsets sold in 2011, with 60% annual growth), what is less talked about is that “feature phones” still represent 64% of all handsets sold (and comprise as much as 75% of existing phones globally). What are feature phones? They’re almost-smartphones in that they provide mobile web access, but they aren’t fast, can’t run apps, and don’t like loading and processing rich content. This also poses a challenge because Facebook’s main source of revenue via mobile today is delivering graphic rich-content ads.
Even on a smartphone, mobile users don’t have the time or inclination to pay attention to mini banner ads (if you doubt this, note that desktop CPMs in 2011 averaged $3.50, whereas mobile CPMs were only $0.75). I own a smartphone (two in fact), yet still I find it frustratingly slow to download any sort of rich content. By not being able to monetize feature phones, and having a revenue strategy that doesn’t accommodate the lowest common denominator across existing platforms, Facebook risks losing vast populations of growth to competitors simply having faster and cleaner apps. With data limits and tiered data pricing added to the mix, this combination is distinctly at odds with its social graph and revenue model. (Note the social network’s recently announced initiative of adding geo-based ads to its mobile apps doesn’t solve this issue and in fact adds even more danger to the recipe.)
Implied Shift From “Static” To “Dynamic”
Aligned with a mass shift to mobile is the concept of social networking itself. Users are not only transitioning to nearly exclusive mobile access for social networking, but also coming to expect that services “understand” their context. The underlying problem for Facebook is really static (desktop) vs. dynamic (mobile). Compared to static, dynamic content is determined and delivered in real-time, chosen to match a specific instance of time and place. The advantage is that superfluous steps are eliminated that users would normally take to click-thru and find what they deem important. (Research shows that every extra step of key presses on mobile results in about 50% user drop-off, so this matters). The simplest form of dynamic content is geo-located search; because it’s context-aware, it’s real-time more relevant, engaging, and thus transaction-able. The static content that Facebook was built for, picture albums and posts, has moved into users’ secondary consciousness. Undeniably our primary consciousness now is instead focused on those real-time value items that aid our on-the-go social lives. Dynamic content is one reason Facebook paid so quickly (and without thought to cost) to acquire startup Instagram and its built-for-mobile products.
Meshing local search with social context would of course be the holy grail, and although it seems easy to provide dynamic content, Facebook simply doesn’t have the requisite infrastructure. No maps, no local, and massive amounts of social noise that block effective algorithmic processing. Google is the strongest mobile player today, but bear in mind that Google had to create and incubate entirely new product suites (Maps, Android, and more) to be able to deliver dynamic mobile content effectively. (Note: where Google falls short is in social relevance.) Because Google’s solution already offers geo-location, Facebook cannot merely be second to offer the same thing. Instead it will need to provide results that are further distilled by social relevance (i.e., pizza results that are nearby, and also favorably perceived among the relevant social graph).
Local Discovery Requires Going Beyond “Likes”
Facebook’s business legacy was building a platform for national brands to advertise and build awareness. However, of all mobile searches, searches for local results comprised 33%. Ads and ‘Likes’ served Facebook’s purposes adequately, but don’t transfer to local discovery. It’s become painfully obvious that “likes” and “social ads” don’t capture the power they were intended to (if that was unclear, GM settled it by halting and rethinking their $10 million annual spend). To refresh, the concept was that of a friend flagging something which we’d then be inclined to go buy, try, or see. However, it’s proven a vague and undefined value proposition for advertisers, as the average Facebook user will “like” as many as 200 things this year. Numerous studies have been done on the value of a “like”, yet it remains unclear as to what it actually is. (Comparatively the cost of obtaining a “like” is close to $1.)
When users are out and about on their mobile devices, they’re looking in real-time for deals or promos they can engage then and there. This type of marketing entails a mix of affiliate, referral, click-thru, and promo-based (offers) that Facebook has toyed with but never embraced. Whereas the end goal of Facebook’s ad model is awareness, the end goal of local discovery is a conversion or transaction. While the world is moving to on-demand, FB’s non-actionable mobile ads are too easily forgotten and aren’t “there” at the moment it matters, the point of decision, or point of sale. (If you don’t think this is a huge issue, just ask the CEO of J.C. Penney who eliminated coupons only to see sales fall 19%.) Compared to Facebook’s “Sponsored Stories,” something as simple as e-coupons can be called for by users where they are and when they want them, customizable for group size, time of day, and geo-location. This is seemingly leagues better than what it currently accomplishes.
The distinct differences between the business models above, means that the social network is currently ill-equipped to handle monetization on mobile, and needs an entirely new product suite which may or may not need to be separated from its national advertising business. The question advertisers ask themselves is: “What impact will I get for my advertising dollars?” Or translated in another way: “Is the target user acting on the referral of a core friend or some low-value edge contact? Product conversation and discovery (alone or in a group) now need to occur naturally at the point-of-time users seek information for buying decisions.
We’re at a tipping point in business adoption of social media, and the market opportunity is huge: 79% of smartphone users use mobile to help with shopping, much of which gets bought locally. And growth? Mobile advertising spend in 2011 was $3 billion, rocketing to $20 billion in 2015. Yet Facebook has already lost ground in this battle. With its short “handles” and hash tags (i.e., @twitter and #twitter) that businesses can claim outright (versus needing to be found and friended on Facebook), Twitter has struck a take-over growth trajectory in the last 12 months. The opening segments of TV shows now feature Twitter handles or hash tag names. This is a major concern for Facebook, as Twitter’s business model isn’t yet formed but has shown major compatibility with mobile, and fills the lite, dynamic need in content delivery.
When you think mobile, you just don’t think of Facebook. Will Facebook begin to lose market dominance, mind-share, and user attention as the next generation of companies take up the mobile mantle? One thing made clear from the past decade is the rapid and vicious evolution of social networking and online user behavior (think of the fast downfall of AOL which went from $226 billion in 2001 to about $20 billion in 2006). FB is burdened with legacy infrastructure that doesn’t make sense for a mobile world. Facebook’s 488 million and growing mobile users are an asset today, but exploiting any optionality with them in mobile could prove elusive, at best a short-term window of opportunity. Engagement trends and ad revenues based upon the existing Facebook model currently speak for themselves. Although Facebook is a mammoth that can’t turn or reinvent itself on a dime, it does have $60 billion of market cap to draw upon… and it has little choice but to invest and acquire aggressively and hope it bets well enough to stay relevant.
All opinions expressed here by Paul Misir are his own. This article was developed with the assistance and contributions of Eric Luke and Wesley Maness. Text graphics were provided by author.
Image Credit: Shutterstock