Facebook and Twitter: End of the Beginning or Beginning of the End?

It’s being interesting to watch the development of Facebook and Twitter over the past few years. Both trying to navigate a tricky move from a free service to an advertising revenue business, without alienating the user base.

Long term, I think Twitter is better suited as an advertising channel, because most people use Twitter as a broadcast channel (if a publisher/tweeter) or to passively consume content. There really isn’t that much real engagement. Advertisers can target to hashtags and keywords, put up sponsored tweets, and it’s all good.

Facebook, on the other hand, was set up mainly as a network for friends and family. Despite some usage by business (e.g. fan pages), that’s still the dominant theme. People use Facebook to socialize, not for consumption (e.g. Twitter) or search (e.g. Google).

That puts Facebook in a more precarious position. To sell ads means doing things that users don’t want. From taking a liberal view of privacy to interruption marketing to hijacking “likes” to sell ads. On top of that, the critical young audience that brand marketers covet is losing interest. The problem is simple: when something becomes so big and mainstream that your parents start using it, it’s time to move on. (Apple, are you listening?)

Yes, Facebook has shown some good results in the past year from mobile ads. But it could be short lived. Marketers are keen to jump on a new channel and test it out, which drives revenue in the short term. But if the ROI isn’t there marketers will drop it just as fast. If users don’t like the ads, they’ll leave. Either way, it’s too soon to declare victory, and it doesn’t deal with the core issue: interrupting social behavior to sell stuff.

Twitter is a couple of years behind Facebook, and had an impressive entry as a public company. But I was surprised to learn about a slowdown in their growth rate and missing Wall Street expectations. Twitter CEO Dick Costolo said in a call to investors that, “we simply need to make Twitter a better Twitter.” Better for whom? Users? Investors?

My feeling is the end game is not particularly rosy for either company. The most interesting bit of analysis I’ve seen was done by Princeton University researchers, which compared Facebook to an infectious disease, forecasting that it will lose 80% of its user base within the next three years.

I don’t agree with that dire scenario, because for all of Facebook’s faults, it has become a useful utility that people won’t willingly turn off. Growth and engagement will slow, but Facebook won’t follow the demise of MySpace, in my opinion. Still, its business viability and valuation is questionable if users don’t click on ads or demographics shift to less desirable (read: older) people.

My take is that both social networks face a lot of uncertainty. Both have moved past the “end of the beginning.” Time will tell if it’s the “beginning of the end.” What do you think?

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