Facebook's Deadly Problem... And You

Unless you have been living under a rock, you know that Facebook's stock has been reeling. Even more so, Facebook is finally making money... but not enough for the bosses on Wall Street.  So, what does this mean for you as a hungry entrepreneur? Here are the biggest problems Facebook is dealing with and how it affects you: 

To start, as if you already don't know, Facebook has built the largest trove of data the world has ever seen and is rapidly closing in on one billion users. But Facebook still has to figure out how to monetize its increasingly mobile user base in the post-PC or "PC plus" era.

The Power of Free:

For many reasons, many users are pretty active on Facebook. They like to keep up with their friends (and make new ones), but there are legitimate business reasons for spending a decent amount of time each day on the social network. Let's look at this from the perspective of an entrepreneur, Phil Simon:

In my case, I manage six Facebook pages. Why six? Well, I am the founder and owner of two small businesses and have written four books. Because of the ubiquity of Facebook, I easily set up pages for each endeavor. And why not? It took very little time, cost virtually nothing, and allows me to potentially reach some of those 954 million users. And when someone likes one of my books or companies, Facebook tells me when and who (and sometimes why). That is, I can easily identify the fans of The Age of the Platform, for instance. Because of this, I don't have to run ads. Sure, ads would theoretically allow me to reach more people, but ads are not free and their effectiveness is suspect.

And Simon here is hardly alone here. The ability to reach potential customers sans payment is arguably the chief reason that General Motors stopped advertising on Facebook, although the company is rumored to be rethinking that decision.

The Amazon & Apple Way:

Think about Amazon, as an example: Anyone can like one of Amazon's products by clicking that button on its page. However, that "like" data is only visible to Amazon employees--not the author of that book nor the maker of that widget. As such, only Amazon can directly identify and market to those people and no one can get around it.

In effect, Jeff Bezos has ensured that Amazon will be a part of every transaction on its platform. Affiliate marketing programs incentivize users to promote Amazon products on their own sites. Google does the same thing with AdSense.

For his part, Steve Jobs recognized the cardinal importance of the direct relationship with the customer when he negotiated a deal with The New York Times for the iPad.

Elite's Take Away:

It is tricky to strike the right balance between open and closed. On one hand, if a platform is too closed, then it may not grow at all.

On the other, as Facebook has seen, there's a real risk in giving companies like mine and people like me the ability to directly reach new users and customers (and subsequently circumvent ads and other revenue streams).