Three Challenges Facebook Must Overcome to Retain Social Network Dominance

October 18, 2012 · by Paul Chaney

Facebook is faced with three challenges that must be overcome in order to retain its dominance as the world's largest social network:

1. Faltering IPO
2. Slowed growth
3. Rise of new social networks

1. Faltering IPO

Like any other publicly-held company, Facebook is now beholden to its shareholders. With the poor showing of its IPO, the company is pressured to find new ways to generate revenue, which it has done through a number of new advertising initiatives, as well as the introduction of a Pinterest-like feature called Collections.

While I rue one of its new ad formats - Promoted Posts for individual users - I do think Collections is a good idea in that, rather than relying on third-parties, it brings Facebook more directly into the social commerce arena to connect brands with customers and prospects.

2. Slowed Growth

According to a Wall Street Journal article, Facebook is experiencing the slowest growth since being tracked by comScore back in 2008.

In response, ostensibly to celebrate its one billionth user (I'd like to know who that person was.), the company has launched its first-ever advertising campaign targeting, among others, countries where it is not the leading social network including Russia and Brazil.

As if that's not bad enough, among small businesses a new report from Vocus and Duct Tape Marketing suggests that growth may have reached a saturation point.

3. Rise of New Social Networks

To make matters even worse, there has been a bevy of new niche social networks, some of which have no intention of using advertising for revenue generation. The most highly touted, App.net, requires that users pay an annual subscription of $36 in order to use the platform.

Similar networks include Path (a mobile-based network), Pinterest, ArtStack (for art enthusiasts) and even, can you believe it, MySpace, which has reinvented itself as a "music discovery destination."

And that's not all. According to Harvard Business Review blogger Jeff Stibel, Facebook may have become too large to sustain itself. In his post - Is Facebook Too Big to Survive? - Stibel alledges that Facebook could reach a point of critical mass where it becomes too big and unwieldy to be useful.

His conjecture, based on science, states that the number of quality relationships any person can maintain is around 150. "This means that it is difficult for you to maintain more than 150 relationships. So in theory, for Facebook, the maximum number of efficient connections is roughly 950 million x 150; anything greater than that will yield an inefficient network that risks implosion," says Stibel who adds that "Facebook is already well beyond that point."

Individually, none of these are insignificant problems. Combined, they add up to one giant headache for Facebook CEO Mark Zuckerberg, who has received a substantial amount of criticism for his leadership - or lack of it as the case may be.

However, what may be Facebook's biggest undoing is the company's own understanding of itself. If you ask any of its one billion users, they are likely to say that Facebook is a social network. However, according to columnist Michael Wolff, Facebook has always thought of itself as a data company.

"By facilitating a set of orderly interactions, it would garner exclusive information that would give it valuable insight into people's behavior. It would eventually know so much about you that it would be able to tell you, with ever-increasing certainty, who should be your friends," states Wolff. "Perhaps never has there been a lamer misunderstanding of social interaction."

This flaw is Facebook's greatest missed opportunity, says Wolff: "Our social lives surely offer unique commercial potential if they can be defined, narrowly cast, targeted and very meticulously catered to. Which is everybody but Facebook's business opportunity."

These challenges notwithstanding, where retailers are concerned the more pragmatic question is whether or not Facebook can function to drive ecommerce traffic and increase sales. By lowering the rank of non-paid, organic posts in its algorithm in favor of promoted posts, the social network certainly isn't helping itself, especially with smaller businesses on limited budgets.

But, let's not throw the baby out with the bathwater. Facebook still has a number of things working in its favor. It's still the largest social network; its user base is extremely active and, for the most part, loyal. Also, its social plug-ins allow any site to become part of the Facebook ecosystem.

The road to f-commerce success may lie less in implementing a direct sales model than it does in building customer loyalty and lifetime value. Creating content based on the interests of fans is critical, as is providing incentives for them to share that content with friends.

Perhaps the real key is to follow the pattern outlined by Wolff: define what our fans want and need, provide highly-targeted content in response, then cater to fans in as conscientious a manner as possible.

And one more thing - don't put all your eggs in the Facebook basket. In my view, your ecommerce website should remain the digital hub of your online marketing activity, and then be amplified by the use of outposts like Pinterest, Twitter, Facebook and others. That is a balanced approach that does not put your marketing efforts in jeopardy based on the ebb and flow of social networks, whichever they may be.

Category: The Social Retailer | Tags: facebook, Social Media, social media