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Social TV can help Facebook avoid becoming the new Yahoo!

Cisco will virtualize multiscreen TV functions

The stats on Facebook usage are jaw-dropping, with over 900 million registered users, over 500 million of whom visit daily. For many of those users, Facebook is the internet. It’s the place they go to connect, to communicate, to share and – increasingly – to spend time consuming content. Much of that content – photos and status updates – is user-generated, but in terms of time spent and revenue generated, the importance of professionally created content, notably social gaming, cannot be overlooked. And by virtue of its scale, Facebook is becoming an important global platform for more traditional media content such as music and video. Yet attempts to charge users for such content have so far failed to gain traction.

Facebook’s attitude to revenue generation has been notably relaxed since its inception, but post-IPO there will necessarily be a much sharper focus on generating revenues, both from advertisers and consumers. The experiment of charging New Zealand Facebook users for highlighting certain types of content will not be the last attempt to make money from loyal users. But the danger here is in alienating those who love Facebook as a free service. Will users stay with Facebook if they have to pay for its services? Charging for something that has historically been free is incredibly difficult to pull off. It makes more sense to focus on increasing revenues from advertisers who on the whole are still reluctant to commit spend to the social network.

There are two further threats to Facebook’s future evolution, though these are also opportunities, too: Consumers spending more time on mobile devices such as smartphones, rather than PCs; and the rise of multi-screen video consumption.

Facebook is still at heart a PC-based proposition, but its users are devoting more time to the mobile devices, so Facebook must shift its centre of gravity to better serve and monetize this trend.

Facebook may yet have a role to play in the evolving TV ecosystem too. Facebook needs more ‘sticky’ content to keep its users glued to the site, and no content is ‘stickier’ than TV. Though it insists on being a virtual utility rather than a content provider, Facebook is nevertheless well placed as a platform for TV experiences, especially with the rise of social TV, where viewers interact on a second screen around content that is shown on the primary TV screen. The exact formula for success in the space has not yet been established. Pre-IPO, Facebook could afford to be relaxed about its role in the evolution of social TV (and the potential rise in ad revenues from those second-screen interactions). Post-IPO, Facebook needs to drive that evolution.

Finally, the fate of Yahoo! casts an unwelcome shadow over Facebook’s IPO. For several years Yahoo was a cool site that couldn’t stop acquiring users, with over 600 million in its heyday. The culture clash between its laid-back founders and shareholders wanting a return on their investment has never truly been resolved. Now, both the company and its users are no longer able to answer the simple question: What is the point of Yahoo!? Facebook can avoid this fate, but it must listen to users and innovate its services to remain relevant and fun. If not, the party will move somewhere else.

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