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WHAT WENT WRONG WITH FACEBOOK?

May 27, 2012

This is a marketing blog, not an investment blog. But I have to comment on Facebook’s botched initial public offering (IPO) since I think marketing played a role in why the stock is now 16% below its IPO price. Fortunately, in the clubby world of Wall Street and Silicon Valley, the billion dollar losers are mostly major investment firms, not many of the 900 million Facebook users.

If you simply looked at Facebook’s advertising revenue model, before the IPO, any marketer would have known they were in trouble. Facebook’s new timeline re-design isn’t liked by millions of users. Ad sales are down and cramming more ads into every nook and cranny is making it harder for advertisers to be noticed, and the ad clutter is annoying loyal users. Perhaps that is why millions now access Facebook by smartphones that don’t have Facebook ads. Also, hot new social media sites (like Pinterest) have no barrier to entry, so competition will grow and social media popularity is fleeting at best anyway. So, why would someone think the firm that I just described was worth $100 billion? Marketing hype.

In my book I reveal the danger of “reading your own news releases.” I use this phrase to outline the fact that highly successful companies often lose touch with reality. With success, you begin believing what you are paying people to say about you. Soon, everyone is caught up in the “buzz.” People that try to point out reality are often described as “not being on the team” or “hurting the company.”

A Memorial weekend message from one Mark (Dennett) to another Mark (Zuckerberg) and to anyone else who wants a successful company: Stop reading your stories and re-focus on what your customer wants. That’s what made you successful, not a good PR team.

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