Facebook represents the business of the future but is too much a relic of the past

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Social media platforms should in theory be the ultimate sustainable business. With a ‘product’ all about connecting people, they score top marks on the ‘social usefulness’ test. And while the medium may evolve, it’s hard to imagine a point at which humans will not wish to share their lives with one another.

This partly explains why Facebook made its market debut in May with such an hysterically inflated share price – valuing the eight-year old business at $100bn, more than any US company in history on its first day of trading.

But in less than four months, over $50bn had been wiped off its share value, representing the nadir of a determinedly downward trend.

Various reasons for this have been cited, from allegations that revenue forecasts were overhyped to questions about the effectiveness of advertising on the site.

But the true explanation runs deeper and Zuckerberg knows it: Facebook is a 2.0 idea powered by a 1.0 business model run on advertising dollars. And this goes to the heart of a serious strategic weakness relevant to all social media platforms in their current form.

Many companies are currently grappling with how they can create value for society whilst creating a profit for their shareholders. Facebook’s conundrum is the reverse: how to make a profit from a social utility that was never designed to be a company in the first place.

Zuckerberg made this clear at the time Facebook listed, telling investors:

“Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected. We think it’s important that everyone who invests in Facebook understands what this mission means to us.

We don’t wake up in the morning with the primary goal of making money, but we understand that the best way to achieve our mission is to build a strong and valuable company. This is how we think about our IPO as well.”

There is of course no contradiction between an organisation pursuing a social mission while needing to make a buck. But there are key considerations.

The first is to create consistency between online and offline social values. In this Facebook has had a chequered record, being attacked for its environmental impacts as well as its tax arrangements. It’s hard to define yourself by a “social mission” so narrowly circumscribed. Public expectations don’t work that way.

The second is to ensure there is not a conflict between a company’s social mission and its income stream. Yet in the case of Facebook, the source of income is dependent on selling access to or private information about the communities it serves. Exploiting privacy for profit.

Generating money this way is fraught with conflict as we saw last month when Facebook-owned photo-sharing site Instagram suggested it would sell users’ images to advertisers, which provoked a huge backlash.

So what’s the answer?

First, Facebook needs to genuinely recognise that its users are not merely datasets to be sold. The concept of privacy may be evolving but so too is public intolerance of its exploitation.

Second, if users believe Facebook does provide them with a valuable social utility they should be prepared to pay for it. But there would need to be a trade-off: less advertising, stronger safeguards on privacy.

Third, Facebook could make interactions between brands and users more meaningful and transparent. This could range from developing new tools to curate consumer sampling and product development to collaborating with major corporates to crowdsource solutions to common sustainability challenges – along similar lines to Unilever and GE’s Ecomagination. With the biggest online community on the planet, Facebook’s potential to fix offline societal problems is huge.

Whether 2013 marks the end of the beginning or the beginning of the end of Facebook will rest on its ability to shift away from a strategy built on creating ad revenue from “monetising eyeballs” to one shaped around harnessing minds as part of a shared social mission.

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