Robert Stein 1924-2014

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Sunday, May 20, 2012

Facebook Future: Clues from the Past

Media ghosts hover over Facebook’s I.P.O. with a valuation of $105 billion, raising old questions about how to turn the attention of millions into profit from advertisers.

The answers have never been clear, but for someone who spent decades in that search, the past suggests a rocky road to future profits for new bridegroom Mark Zuckerberg's enterprise.

In 1997, when stock of the Internet’s first phenomenon was soaring, in a New York Times OpEd piece, “AOL’s Bottom Line,”  I questioned how a dial-up service was eating up traditional journalism, eventually swallowing a chunk of it in what has been called the worst merger in media history.

I compared AOL then to mass magazines of my era which kept accruing ever higher circulations at cut rates while consumers needed them less and less in the hope that advertisers would provide revenue to save them.

The magazines died but AOL was bailed out, ironically, by a merger with Time Inc., the healthiest dead-tree dinosaur, which worked out so miserably that AOL had to be spun off before it sank the remains of Henry Luce's empire.

That history does not bode well for Facebook, in the light of almost a century’s media experience with the American information industry, the only big business in which customers don’t pay for the product. What has value is a byproduct, their attention, which is then resold to advertisers.

An ominous sign is the recent withdrawal of General Motors ads from Facebook, with observers noting the need to “convert that fan engagement into a business outcome for marketers.”

While users avidly share their vacation slides and other passing interests, how does a social network divert enough of their attention to pass it on profitably to people who want to sell them things?

No one has solved that problem on a large scale before. If Facebook can, it will turn out to be more than a lumbering giant like those of old. Until it does and/or uses its inflated stock to acquire entities that actually make money, it looks more like a highly overpriced stock market dream.

1 comment:

Market Research said...

So informative content.