May 18, 2012

Facebook as Social CRM

It feels wrong not to comment on the largest tech IPO in history happening today. I have read many articles about the Facebook IPO. Most of them dismiss it as ‘Bubble 2.0’, but have also seen some interesting analysis on the potential of new business models.

Let’s not forget that just about every pundit predicted doom for Google when it went IPO in 2004. I have heard compelling arguments that Google was likely to self-implode and the growth would stagnate. Yet, Google defied gravity to become the most successful technology company (only next to Apple).

Challenges of Historical Models

Nobody can predict whether Facebook will become another Google. Facebook needs to execute flawlessly and there are numerous pitfalls (apart from the stock performance). It might be just one privacy fiasco away from self-destruction. The advertising business model might not scale, as most of the daily visitors simply don’t click on the cluttered ads. Despite the Instagram splash, mobile could turn out to be their Achilles heel. Advertisers on Facebook have been rightly compared to solicitors in a bar where you hang out with friends. GM pulling out its ad spend on Facebook added fuel to the fire.

However, most pundits seem to evaluate Facebook based on the historical business models that we are familiar with – web and mobile advertising. When Google started, just about any ‘business guy’ was asking them smugly about monetization & user 'lock-in'. When Larry page spoke at Stanford in 2003, I asked this question directly to him. He (rightly) admonished me for being B-School type and repeated the ‘Don’t be Evil’ mantra. Google believed that creating value for the end-users would convert to money at some point. Then they invented the AdWords business model that became virtually a money-printing machine.

New Markets and Business Models

I think it’s wrong to evaluate Facebook on the models we understand today including mobile. The real power of Facebook is in being the true identity management solution for the world. It's far beyond mining the tons of data. Facebook has an enormous opportunity to be a consumer-facing Social CRM, unlike the traditional B2C CRM solutions that are primarily designed to be used by enterprise employees. Today, brands and retailers have practically no way to engage 1:1 with their consumers. If designed well, Facebook can be the facilitating neutral intermediary for 1 Billion+ consumers to have a rich 2-way engagement unobtrusively with the few products they really care about in one place from registration to offers to support, instead of being bombarded with annoying and irrelevant ads. It could also integrate with the CRM solutions of enterprises (on-premise or cloud) to connect with consumers. It’s happening at a crude level today, but there’s a lot of scope for improvement. (Update: from the comments below, it looks like consumer-facing social CRM can also be called VRM - vendor relationship management).

I have written about how Facebook could enter offline & mobile commerce leveraging mobile loyalty solutions. Of course, this requires addressing the privacy challenges, but these are just some of the potential new multi-billion markets Facebook could enter and redefine and that might justify its valuation. 

IPO euphoria is tricky. We have negative examples of Groupon as a company that was hyped, but fell from glory, but there are also examples like LinkedIn that seems to have figured out how to engage business professionals on a daily basis and continues to raise the market cap after IPO. 

I suspect beneath the mirth of a casual social network and brandishing of F-Commerce (strange name!), Facebook has some strategic assets that can transform the world of commerce, just like Google did with search advertising.  Let’s hope the billions don't distract them and Facebook will march along their mission to 'make the world more open and connected', led by their cool-headed business leader Sheryl Sandberg, while making 'some' money along the way!
Disclaimer: This is purely an outsider’s view and I have had no discussions with Facebook about its strategy. And I don't own any Facebook shares (yet:-)


  1. Alex,

    Nice post. Although I myself have struggled with this 'incremental' thinking about one of the most anticipated IPOs of the last few years, the reality is that Facebook is more than 8 years old and still depends on advertising for 85% of their revenues. While Google's percentage is still higher even higher today (96%), they have demonstrated a higher willingness to experiment with alternatives (without strong results to date). Of course only time will tell, but I personally have not seen the same fail-fast-fail-forward approach with Facebook...and remember Google was more than 2x the size of Facebook when they were this old.

  2. Hi Ted,

    Thanks a lot for taking the time to comment. Of course, my thoughts are just speculations. I agree Facebook has shown fewer experiments than Google. However, as you point out, FB has a more diversified revenue stream today. I do think Facebook has more interesting assets for the future of social & offline commerce, but they need to tread over the privacy landmine even more than Google (which in turn, has their anti-trust landmine!). I don't think it's a zero-sum game and will be fun to watch!

  3. Here some more fuel ;-):

    1. Pushkar,

      Thanks for sharing the article. It's an interesting read and actually seems to support my argument :-) VRM is exactly what I mean by consumer-facing Social CRM, where consumers can manage relationships with vendors. Facebook is best positioned to do that instead of any start-ups.

      All the other arguments sound like what people were saying in 2000 about banner ads (irrelevant, annoying etc) until Google AdWords came along. Now search results are too crowded and advertising needs to evolve. Connection to offline commerce & real purchase history can make targeted advertising far better and relevant.


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