Tech - How Facebook Can Avoid Being The Next Yahoo!

Which new media platform has rocketed to hundreds of millions of unique visitors, provides both utility and entertainment for the masses, and has become the destination of choice for its generation? If this were 1999, Yahoo! would be your answer. Today, that torch has been handed to Facebook. And with good reason, since they have embedded their ubiquitous social network of nearly 1 billion members into a large part of people’s lives and the digital ecosystem.

But Yahoo!’s challenges tell a cautionary tale for Facebook. Yahoo!’s  unique attributes have been effectively copied or supplanted in a world where Google dominates search, content becomes ever more specialized and fragmented, and email no longer draws people in as they access their messages on ad-free smartphone apps. In fact, Yahoo has seen US monthly uniques drop from 100 million to less than 85 million uniques per month since last summer according to Quantcast and revenue trend in the same direction, as their role as portal has diminished.

So what can Facebook learn from Yahoo!’s fate? Ignore your clients at your own peril. Other pundits and analysts are talking about Facebook’s need to innovate on mobile, so I’ll leave that to them. Here are some choices Facebook must make to its core business, in terms of how it supports its clients in the next 18 months:

• Cater to advertisers that help create legitimacy, or change the business model. The media business has always served two masters – the audience and the advertiser. Facebook seems to think they can focus on the requests of the masses, vs. the biggest brands (and budgets) when it comes to paid placements. If they plan to continue that approach, they should recognize that their paid media will only come from transactional marketing efforts, like direct marketing campaigns, and that agencies will make the lion’s share of the engagement revenue.  Instead, Facebook should partner with the most influential marketers to define an experience that elegant serves the business and the audience.
• Develop in-house teams that can charge for helping brands succeed with engagement. If the goal is to remain focused on paid ‘engagement ads’ and otherwise let brands do their pages on their own, Facebook should build engagement teams that can advise – for money – how brands can drive the use of the platform for brand immersion. Rather than let the agencies walk away with that business, Facebook needs to align with them strategically, and help them optimize the experience for brand marketers. Clearly, Oracle and Salesforce.com recently got religion about how to capitalize on social, on the back of Facebook, with the acquisitions of Vitrue and Buddy Media, respectively (see my colleague Melissa Parrish’s take on those deals here, and a call from Shiv Singh at Pepsi on the rise of social suites).
• Design an ad-supported interface on the brand pages that allows advertisers to be creative. Facebook is both too plain and too rigid for the creative teams that support most brands. While this keeps things clean, it limits the effectiveness of the advertising they are building their business on. If the user experience on the Wall is sacrosanct – arguable since they have complicated the algorithms and clutter on that page – then they need to enhance the brand experience for those that “opt in’ for brands to appear on their wall. Forcing people into the Timeline structure challenges brands to develop a new brand or campaign platform, especially one that is hard to differentiate visually.

Yahoo!’s revenue is in decline, and their management shake-ups are due in part to a lack of clarity of what they are versus what they should be. Is Facebook a media platform? A consumer utility? Or something else? Either way, they need to listen to both of their customers, or someone will rise in their place the way they supplanted Yahoo! (and MySpace, and Friendster, and others).