I had no idea my predictions about Facebook would start happening so soon. I assumed a Microsoft-like company lifetime, where Facebook would have a big IPO and become more powerful first before starting its decline. Instead, its decline seems to have started before the IPO. One reason this is a little unfortunate is that I have heard rumors that Facebook was doing some very interesting experiments at work, in particular "100% time" (versus Google's 20% time), so engineers can work on whatever they want, all the time (fortunately Valve is also running an experiment like this).
My guess is that the IPO devaluation of Facebook is a direct result of the meme that has spread through the internet: "you're not the customer, you're the product." Facebook's users have slowly begun to understand this, and investors could see the ultimate impact. Even web cartoonists see the problems in Facebook.
In order for the next generation of social networks to stay relevant, they must focus on serving their users. This is an issue of alignment (I'm starting to think alignment might be one of the fundamental principles -- like transparency -- for designing a business culture). I've written about a possible implementation for social networks, but let's consider the alignment of the business structure.
How you make a profit is going to affect your alignment. The way that I understand Costco, all products have a small markup that covers all operating costs. All the profits come from customer annual fees, which means that the company is perfectly aligned to focus on customer delight.
Contrast this with a typical publishing firm. The goal of publishing appears to be to create wonderful books, because people want to buy wonderful books. As a secondary effect, wonderful books tend to sell a lot of copies and produce boatloads of cash. The smell from those boatloads of cash attracts MBAs who turn it into a numbers game, and eventually the goal of publishing becomes to sell lots of units (units of something, it doesn't really matter what) and make boatloads of cash. Somewhere along the way, publishers forget why people buy a book (if they ever knew in the first place). They try to come up with formulas for success, produce mediocre-to-bad books, refuse some really good books because they don't fit a formula (which, ironically, is exactly what many customers want), and don't publish good/important books because they don't promise to be blockbusters. Publishers are the perfect example of the Dunning-Kruger effect: In the book world, publishers probably know the least about why someone buys a book, and they are completely convinced that they know the most.
Facebook's alignment is off. They make profits by pretending to control groups of people, and pretending that they can somehow deliver those people to the advertisers. This "delivery" is itself a misunderstanding which has come about because some unknown products have become popular when people discover them and decide they like them and tell their friends through Facebook. Which is great, because you get product advice from people you actually trust -- Facebook "friends" -- instead of (this is actual irony) Facebook's true customers, the advertisers, whom you don't trust. What Facebook is implicitly promising is that they can make you popular, that they can somehow get the unwashed masses to spontaneously give you a thumbs-up, rapidly followed by boatloads of cash.
But social media is specifically about getting honest information that's real, from regular people whom you trust and who don't have a vested interest in the outcome, only in being helpful. By promising their customers that they can subvert this process and produce a shortcut to viral success, Facebook has undercut itself. Investors have started to realize that something about this formula just can't work.
After ignoring it for a long time, I've finally started to use Twitter a little more -- just in time for them to start trying to control my attention by "promoting" things that I haven't subscribed to. The value of social media is that it can use the wisdom of crowds (ideally sub-crowds of people you trust) to filter information; to harness the mental energy of many so that you don't have to work quite so hard. Someday, with the combination of hardware, software, and people, we might be able to deliver to you only the stuff you want to see, in the way Pandora mostly just delivers the stuff you want to hear. That's why I pay for Pandora, because it provides real value to me (and I don't want to see ads). When Twitter pollutes the filter by throwing in ads, they make my life harder because I waste my attention filtering out their ads. But they don't seem to understand that the whole reason I'm there is because I want more filter, not more noise.
I'm tempted to say that you need to determine your profit model first, as part of your foundation culture. That might be overly restrictive, but how you make money establishes a big one of your incentives and will influence your behavior. It might be enough to decide that you will align your profit model with your organizational objectives, but it seems more powerful if you have an actual implementation in place.
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