Facebook and Twitter and their long, slow slide into irrelevance

Today's major social media providers have a problem: How to make money, can they find the unicorn?

There's one huge problem with social media and it's much the same problem that we face with the major ISPs: The concentration of market power in the hands of a few gigantic service providers (i.e., the lack of competition) means the services are hugely oriented toward the interests of the providers and only marginally those of their customers.

When it comes to social media providers such as Twitter and Facebook all is not rosy, however, because they have a big problem: They have billions of users, but how to make money out of them?

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The trouble is social media users are cheap and they won't pay to use Facebook or Twitter. This means there's really only one way for the companies to make money: Advertising.

But with a business model based on advertising comes a problem: To get top dollar for ad placement the service provider needs to effectively target their users to improve "clickthrough" rates. That requires the user's personal data to be mined and now we have a huge consequence: mining user data essentially destroys any notion of privacy which, in turn, alienates users.

There's also another problem: Can social media providers generate enough revenue from advertising to survive? Consider Facebook. Since the company's seriously over-hyped IPO in May its stock price has tanked from $38 to, as of this writing, $18.96 (it has been as low as $17.55).

What Facebook is currently looking for is a unicorn, an advertising model that will deliver what advertisers want but not annoy users so much that they abandon ship.

There are three possible outcomes to this search: The first is they find a unicorn and become another Google. The second is they find not a unicorn but a horse and make some but not a Google-load of money. The third is, of course, they just carry on as they have been doing. The latter two outcomes both have much the same result; a slow MySpace-like slide into irrelevance (the horse version could be much slower, depending on how happy or otherwise they make their users).

So, what probability would you assign to Facebook finding a unicorn? I'd put it at no more than maybe 1% at most. Finding a horse? Perhaps 10%. Finding an empty field without a horse or a unicorn? 89%. In other words, I don't think Facebook is a long haul proposition and I'm guessing it has, at the least, a 99% percent chance of going the way of the dinosaurs.

Much the same long, slow slide into irrelevance probably also awaits Twitter. Twitter management has recently made a number of significant changes to its Application Programming Interface (API) that will make it harder, not easier, for third party user applications to interact with the Twitterverse. It appears that Twitter is becoming more focused on business use (i.e. advertising and marketing), and far less interested in enterprise applications or consumer clients. I'd say those are a big mistakes.

Be that as it may, I think the future of social media will be smart tubes carrying social media traffic. Smart tubes that aren't advertising supported and provide a common communications mechanism that's not as constrained as, say, Twitter, or as intrusive as, say, Facebook. And I think I know just what might be the smart tubes of the future. Tune in next week ...

Gibbs in Ventura, Calif., is taking bets of Facebook's future. Your odds to gearhead@gibbs.com and follow him on Twitter (@quistuipater) and on Facebook (quistuipater).

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