One of the things that the film ‘the social network’ has done is raise a lot of controversy over the valuation of Facebook. Most people who are not in the web space find it astonishing that a company that young which has barely turned a profit is valued at a whopping $25bn! I am one of those believers that Facebook will become the biggest technology company in the world surpassing Microsoft, Apple – both of which have market capitalisations over $200 Bn – and yes even Google (who lags a bit behind with a market cap around $190 Bn) Here’s why.
First lets take a step back. On the face of it companies like Apple, Google and Facebook have little in common other than great tech people and fanatical users. But fundamentally they are enablers of the same thing: allowing people to communicate in easier and better ways and accessing information more readily.
I would argue that the first big step in this journey started in 1883 with the discovery of the Phone Book. A brilliant concept for its time (and still used today albeit less so) which put everyone in a directory branded ‘The Yellow Pages’. A century later the internet comes along so people can now access newly updated information at the click of a mouse. Yahoo! creates what is in effect a digital version of a web catalogue of sorts, allowing people to navigate the web by drilling down a broad category base. Bill Gates at the time called it ‘very cool’. Yahoo! rose to become the big star of the dot com era and a multi billion dollar organization.
But then of course it all changed with search. Simple and brilliant as the idea of cataloguing the web may be it’s even more brilliant to say – well we’ll index the whole web – bit like a library – and then you can just search for stuff you want which will be pushed out to you. No more drilling down and navigating. Simpler, better, more powerful. Google emerged as the most powerful search engine rising to the helm of the internet kingdom.
Many believe that Google’s pole position is unbreakable. True in some respects. Even if a company manages to create a better search engine the sheer computing power that will be needed to index the web now will make it uneconomical. Don’t forget the amount of content on the internet back when Google started was a small fraction of what it is now, setting huge barriers to new entrants.
But like most step changes in an industry what will unearth Google’s power is not a better search engine; it’s an altogether different way of accessing information. The same step change that took us from the phone book to digital directory to search itself.
Facebook is the first company that has that power. The power and genius of Facebook is the social graph: mapping out people’s connections with one another and building a knowledge base centred around your social interactions. The power of that is the ability to drive personalized content to you. When people go to Facebook they see a page personalized to them with information flowing from your social graph to you. When you go to Google most people see the same search results.
It remains a question as to whether Facebook will go down this route or not, or whether it will be Facebook itself or other applications built on Facebook through its API, but fundamentally what makes sense is to be able to find information based on ones personal traits and preferences. Google is going more and more down that route by building algorithmic intelligence so that when you are logged in search results are customized to you. But it remains a question whether more complexity will solve the problem, or whether the simple overlay of your social behavior is a better means to the same end.
Most step changes in science and industry have been the result of clever technology applied to simplify a problem. So there is argument to be made that the next step change in accessing information will not be a magic black box with artificial intelligence to predict what it is you’re really looking for. It will rather be an application that reflects our natural behavior, the way we are hard-wired in our DNA to think and act. And the reason I think Facebook will be the one to make that leap is because we are intrinsically social in nature in the way we think and act. A reference from a trusted friend remains the holy grail of advertising.
Illustrated with a simple example: if you’re searching for a holiday resort who would you trust more: a magic black box beefed up with artificial intelligence that will algorithmically compute and predict where’s best for you factoring in all your traits, preferences, and behavioural patterns… Or a referral from a trusted friend? I know which one I’d choose.
Of course this is by no means an easy feat. Facebook faces many challenges and threats. Privacy is a big issue and central to the argument above. The extent to which Facebook owns its information is uncertain as is equally the use it can make of that information, both legally but also from a user experience perspective. The line between use and abuse if very fine and as users demonstrated when the News Feed feature first came they are very sensitive to how that information is used and shared in the community. So finding the balance is a big part of cracking the problem and some say it will never be able to fully commercialise its content which is partly true.
My faith in the space is multi-fold. I think with time people will become more relaxed about information sharing and more accustomed to the ‘open web’. People will realize that the value one gets from the open web in the end outweighs the problems and will give in. IP law around user generated content will mature and become more defined. And most importantly – as Facebook has demonstrated fantastically time and time again – it will get smarter about how it uses its information through great product innovation.
Of course it may not be Facebook that makes that leap change – it could well be a new startup. We would hope that with the move to a more ‘open web’ the barriers to scale are reduced as companies will share that information and allow new applications to be built on top without reinventing the wheel per se. The only issue I foresee is that the openness argument works for as long as it makes those that are opening up grab more territory themselves. It may just all change if someone is having their lunch.