What to Expect When Facebook Is Expecting: Five Predictions for Facebook’s First Public Year

This article was published as a guest post at AllThingsD, and is republished here for Digital Quarters readers.

Mark Zuckerberg’s baby will be coming of age in a few days, just eight years after it was born in a Harvard dorm room. We’ve been there for the first steps, and the first missteps. But do any of us know what Facebook-all-grown-up-as-a-public-company will look like?

I have five predictions of how Facebook will be maturing in the first year after its IPO:

1. Search

Facebook has become home base for users in many ways. But when it comes to search, Facebook makes you take a bus transfer at Google every time you want to leave the house.

And that’s a shame, because Google starts each search from a place of knowing almost nothing about me. When I’m taking a vacation to Bali, I’m far less interested in Google’s generic recommendations of things to do than I am in recommendations from my friends who have been there.

Facebook already knows which of my friends have been to Bali, and which restaurants and attractions they liked the best. It can even differentiate between the friend I trust for restaurant recs and the friend who always finds the best surfing spots.

There is a clear battle between Google and Facebook. But it’s not over “search vs. discovery,” as it is often framed. Rather, it’s “transaction vs. relationship” — which is why Facebook has the potential to disrupt search as we know it.

Prediction: Facebook will launch a purely social search by the end of 2012 (before tackling the whole hog in 2013).

2. Advertising

Despite the company’s fierce ethos of consumer experience first, business concerns second, an IPO will inevitably put upward pressure on the latter. With the numbers published quarterly and the prices reset every day, Facebook will be forced to support that share price (if not for the sake of its shareholders, then at least for its employees!) by expanding its advertising revenues.

Facebook today brings in quarterly ad revenue of $872M — just a tiny fraction of Google’s $9B. But transactions are by nature pecuniary — and relationships are priceless. As a gatekeeper to nearly a billion consumer relationships, Facebook can roll out new advertising products that are far more valuable than AdWords.

The market for online brand advertising is already huge at $85B today. As soon as Facebook unlocks the potential of relationship-based advertising, the market will open up by tens of billions more.

Prediction: By Q2 2013, Facebook will have more than tripled ad revenues to $3B per quarter.

3. Open Graph

Occupy Facebook! Oh wait, we already do. Or does Facebook occupy us? Facebook currently occupies 1 in 7 minutes of all time spent online.

As the locus of consumer identity, attention and relationships, Facebook has the potential to be the one true platform that links together every destination on the web.

But it’s not there yet. Open Graph was a start, but it lacks a complete and actionable vision for how publishers can connect, access data and establish relationships. Publishers don’t want bits and pieces of data that they need to analyze themselves — they want a unified schema that bridges their audiences’ online worlds and real lives.

When I buy a chicken at Whole Foods using a Facebook app’s mobile grocery coupon, Facebook can match that incoming data point with the fact that I read Cooks Illustrated and that I’ve been on an Indian food kick lately (based on my restaurant check-ins). By the time that chicken is in my reusable bag and I’m hauling it out the door, there should be chicken curry recipe suggestions on my Facebook page.

Facebook has an opportunity to turn data from the long tail of Facebook apps into real inferences about you and me that publishers and other brands on the web can actually use.

Prediction: Facebook will completely redesign their analytics offering by Q2 2013 to provide not just data but real, integrated audience insights that will guide brands’ personalization efforts.

4. Commerce and Currency

Advertising won’t be the only revenue play Facebook makes in its first year as a public company.

Digital commerce (i.e. digital goods) already represents more than $16B in market size, and is projected to grow to $36B globally by 2014. E-commerce is another $680B on top of that. Both are currently conducted by arcane means: Visa card numbers and PayPal accounts.

Why have digital payments been so slow to evolve? Because even the most trusting of us only allow a few close associates access to our most private details. Who knows me the best? My bank, my lawyer, my mother and Facebook. In fact, no one owns my identity as well as Facebook these days (sorry, Mom!). Just because Facebook doesn’t have access to my wallet yet doesn’t mean it’s not going to happen.

A host of companies today (Google, Apple, Square) are trying to become your digital wallet, but Facebook holds a valuable advantage: it is already the locus of your relationships with third-party Web sites through Open Graph. While the logistics will certainly be no piece of cake, commerce is right up Facebook’s alley.

Prediction: By Q2 2013, Facebook will be presiding over $2B in transactions.

5. Timeline

There’s nothing more core to Facebook than its user experience, and Facebook has since its birth shown a consistent healthy dissatisfaction with it no matter what the status quo.

The current timeline experience is a nice try, but it’s not quite right. Timeline solved one problem — the indigestible frequency and quantity of updates at all levels of priority — while creating several more. New Problem #1: Timeline’s intuition about what’s important is too frequently just plain wrong. And while it gives us a great retrospective on people, it does a surprisingly poor job of helping us stay up to date with them. New Problem #2: Timeline depends heavily on Open Graph widgets to summarize our lives.

The latter is both ambitious and troubling. We admire great biographers for their ability to identify and communicate the essence of a person. It’s an insult say that a Nike Fuel score algorithm can capture the “real me” in the same way.

Timeline is a v1 product. It will take significant and deep tuning over many versions to reach its full potential.

This may seem like it’s just a UI update, but it’s not. Timeline is the clearinghouse for everything that happens on Facebook. Getting Timeline right is probably the single most valuable thing Facebook can do to grow its effectiveness with users — and its revenues.

Prediction: Facebook will release the first major redesign of Timeline by the first half of 2013.

Will the precocious kid that Facebook is today grow into a smart, savvy adult? A boatload of investors and J.P. Morgan certainly seem to think so. Over the long term, it will depend on Facebook’s ability to leave its youthful single-minded focus on users behind and execute consistently against two metrics: great user experience and revenues to match.

6 Lessons For the Key Players In New Media

This post was originally as a contributed piece to Fortune.  It is republished here for Digital Quarters readers.

Tech’s top firms — from Apple and Google to Amazon and Netflix — are vying to reshape media with different game plans. Here’s what they each need to know.

Digital media has the power to change the world. Actually mastering this 21st century business (and art) is unbelievably hard, however. That begs the question: The top media companies all know they need to make changes — but how do they find the right change and execute well? Let’s look at this question through the lens of six key players in the digital media revolution.

Apple (AAPL): Transform the rest of our digital experience.
It may seem arrogant to give advice to the one company that has surprised everyone again and again by being light years ahead of the industry — as well as the consumer. Yet, in a new era of leadership, the most important thing for Apple will be holding on to Jobs’ core values and strength. As corporate leaders go, Jobs was always the best change agent on the planet, and he was never willing to accept the status quo. That’s why Apple is a perennial leader when it comes to devices and distribution for premium media content like music and movies.

The Apple crew must extend its golden touch to the rest of the digital media device world. It’s time to supply the living room with a first-class TV experience; and to seamlessly flow all entertainment between the mobile, iPad, TV, and desktop worlds. AirPlay, iCloud, and AppleTV aren’t all the way there yet. Apple’s next challenge is to make devices that leap forward and bring entertainment and applications wherever I am, and to know me as one person across all of these environments. To do so — and to do so well — will take a huge imagination. And, even without Jobs himself, it’s clear that if anyone can do it, it’s still Apple.

Facebook: Be everywhere the consumer is.
More than any other company on the Web — even Apple — Facebook has changed the nature of digital experiences. It’s already established itself as the dominant social operating system for consumer audiences. And yet it has the potential to go much, much farther. If you need more proof, just this month Facebook announced that it will be facilitating the spread of mobile applications, not to mention linking into them — finally bridging the gap between Web and app. It’s invading Apple iOS’ and Google Android’s territory, providing the cross-application linkages that have always unequivocally been the job of an operating system.

Increasingly, Facebook has the opportunity to wire consumers, applications, data and devices together. But for Facebook to do this, Mark Zuckerberg will need the kind of imagination that Steve Jobs had. Indeed, Zuckerberg will have to imagine a whole new ecosystem, this time one where Facebook facilitates all connectivity. He’s proven he can execute already. But can he take on a vision this big?

Google (GOOG): “What got you here won’t get you there.”
This trademark phrase from Wetpaint COO Rob Grady is particularly apt in Google’s case. Google is the undisputed king of finding answers to questions — as long as they’re being asked from desktop and laptop computers. But when it comes to applying its great search strength to mobile environments, tablet devices and communications, Google is still lost. While the Android operating system is clearly one of the winners, it doesn’t give Google the essential financial success in mobile that it has on the desktop. Google needs to reinvent itself. It needs to make a bold “burn-the-bridges” move, adopting a Reed Hastings-like philosophy that the company cannot rely on search alone. Only, in Google’s case, it’s even harder.

Here’s why: Hastings had already clearly identified the next wave’s product at Netflix (NFLX) — streaming video over the Internet — but Google has to find a new vision altogether. This is not to say that Google needs to exit the search market by any means. But, instead, it must reinvent its own search portfolio, the way Intel (INTC) reinvented the microprocessor generation after generation, always allowing its newest chip to put the last one out of business, before the competition did. Indeed, Intel’s sustained success was built, in part, on destroying what worked and replacing it with something that worked even better. Google’s new vision should surely have three components: mobile, search and social. The good news is that, thanks to Android, Google already has A+ platforms to build on the first two.

But search needs to get beyond the query box, and the mobile device can be more than a phone plus PDA. Google’s challenge — and its opportunity — is to reinvent it as a completely connected device that is woven into the fabric of daily living. It should know where I am, who I’m with, and what I’m doing — or at least have some educated guesses. It should make the next interface leap that helps us leave the thumbs behind. And, it should be a digital companion that picks up on environmental cues and helps me live my digital life. Siri has opened our imagination; but Google has amazing voice recognition, algorithmic and platform strength to accomplish these things. Now it sorely needs to understand people. That’s the most pressing — and most problematic — task for Larry Page and his team in 2012.

Amazon (AMZN): Fully bridge digital media and commerce.
If Facebook is the ultimate platform for social connectivity, it’s pretty clear that Amazon should be the ultimate platform for media and commerce. Amazon has already made amazing progress in redefining itself. It started as a bookseller, became a retailer, began representing other retailers and, most importantly, has morphed into a media and device company. And, as if that’s not enough, its Web Services power tons of other companies that make the Internet fascinating.

That said, a scattershot approach won’t help Amazon become the single defining platform that bridges digital media and commerce. Amazon has tremendous assets in its catalogue, in terms of both physical and digital goods. And it also has devices that give it a unique channel to the consumer — for the time being, at least. But to fulfill its true potential, Amazon needs to extend its platform all the way to commercial transactions, wherever they happen.

Beyond digital goods, Amazon should be working on digital currency and customer management; an acquisition of Square would be a tremendous accelerator here, and it would ultimately help Jeff Bezos and his team power transactions wherever in the world they take place. What Facebook is to our social transactions, Amazon should be to our commercial ones — an OS for commerce. Indeed, Amazon has the opportunity to provide OpenTable-like services, for all commerce, not just for the restaurant industry. It’s already got the goods and the customer relationships. <ow it just needs the focus on the bigger opportunity.

Yahoo (YHOO): Decide what the brand really stands for.
On one hand, Yahoo is the most impressive all-digital media company there is. It has tremendous access to a huge audience of consumers, a broad product portfolio, an unrivaled heritage as a first-generation superstar and a unique reach into Asia. And yet, it’s also the most disappointing digital media company in the marketplace, so much so that its brand increasingly stands for nothing in particular to most of its audience.

Of late, attention has been focused on Yahoo from a financial point of view. But whoever eventually buys the company must look beyond integration, splitting and cost cutting. Instead, the acquirer will have to figure out what to do with Yahoo’s core. And it all comes down to one key question: What can Yahoo provide to its audience to earn their attention every day?

To date, the hook has been email. Yahoo Mail is responsible for about 75% of Yahoo’s media traffic. But Yahoo Mail isn’t growing. In the last year, it shrank slightly (<1 %), according to data from comScore. So, for Yahoo, the choices are to innovate in communication to leapfrog Gmail, Skype, and the lot; or else to do the hard work and start figuring out again what Yahoo really stands for. The company has great roots. It has a natural brand for serendipitous discovery, for fun and interesting news to make your day. The bottom line is that Yahoo should be able to execute on both the options listed above, hopefully without waiting for the financial dust to settle.

Washington Post (WPO): Re-inventing media’s most ravaged category.
If we had to name the most ravaged sector of media, it would certainly have to be newspapers. Don Graham recently said the industry is “collapsing.” But, he’s not just watching it happen; he’s actively and energetically intervening. I’ve been incredibly impressed by the way Graham and his team are up for re-inventing the category, especially as I’ve talked to other organizations that are nearly paralyzed. Instead, WaPo is applying the greatest growth trend of the Internet — social media — to its business. With its inordinately valuable and trusted brand at stake in the Washington Post, the risks are clearly high. Rather than acting out of fear, Don and his Chief Digital Officer, Vijay Ravindran, are taking aggressive advantage of opportunities to engage, grow and retain their core audience. At the same time, they’re downshifting to the younger audience that just isn’t buying newspapers. The Washington Post Social Reader is the flagship example, and it’s a bold move to jump ahead of the consumer and create a new experience for people that they didn’t know they needed, all on the social Web. [Full disclosure: My company Wetpaint works with the Post.]

We will see other awesome and amazing talents emerge in digital media over the next decade. These greats-in-the-making will help build on the staggering changes that technological change has wrought.

SOS – The Social Operating System

Facebook F8 has made clear that the digital world is now powered by social operating systems.  It’s all changed.  The below post was previously published at paidContent, and is republished here for DigitalQuarters readers.

SOS – The Social Operating System

How the Social Web Has Rewired the Digital World From the Ground Up

In the wake of Facebook’s F8 mega-event, with its parade of product, feature, and platform announcements, I’m struck by the recent major inflection that has social networking penetrating more and more completely into our digital lives.

Indeed, social networking has moved from something that’s a destination activity, to something that is ever-present throughout every digital experience.  And, no doubt, Facebook will continue this rapid progression.

My awareness that social networks have seriously and profoundly journeyed into our lives began with the startling statistics that I published in June:  the searchable Web is shrinking (by 9% in consumers’ monthly time spent over a recent one year period); while the social Web is growing (with a matching 69% increase in time spent on Facebook specifically).

But the change has since intensified, as Facebook’s share of consumer attention has increased even further, and as Web sites the world over race to recruit Facebook “fans” and “likes.”

In addition, the trendline has also become increasingly clear and sharply etched in recent months with the LinkedIn IPO; and with the Google+ Project, as even mighty Google vies for relevance as a social fabric that helps weave our world together.

Putting it all together, I’m seeing a restructuring of the stack: a new layering of how media is created, distributed, and experienced, different from the first generation of the Internet.

It’s the rise of what I’ve come to view as the “social operating system (Social OS).”  And I think it changes everything for media and other companies online.

The New Way News Travels

Unlike the analog world, where content and distribution companies have largely fixed channels (licensed spectrum; contracted cable distribution; stable subscription bases; theater outlets; and other distribution power), digital content isn’t channelized.  It’s itemized.

That means digital content has to earn an audience – item by item.  The first generation of digital media publishers turned to search engine optimization to solve that, with an endless and constantly escalating set of editorial and technical tricks to bait search algorithms to rank them highly.  This became de rigeur for every digital publisher; even as it spawned an arms race to find an audience.

But now that social is ubiquitous, the nature of distribution changes for media companies.  And now, instead of having to reinvent the distribution wheel every day for every page, publishers can rely on a system far more powerful than the search engine to sort, select, and rank content.  That system is part human, and part technology – but it is 100% social.

The Social OS sits at the boundary between content and the people who consume it.  It provides a layer of functionality that lets Web companies focus on their unique content and the experiences that they offer – while earning distribution, not via channels, but via people.  And, in the process, they earn, not a mechanistic relationship with an algorithm, but a real relationship with their audience.

None of this was possible until very recently.

The Internet was too immature: both in terms of technology, and audience. Indeed, it’s only since this decade started that we’ve had the social network and mobile technology in combination with literally billions of users online; this mix lets people connect to each other, and allows content to flow effortlessly from one consumer to the next.

And it’s this combination of technology (networks like Facebook and Twitter); content (with providers like Apple, NetFlix, and YouTube, not to mention the hundreds of blogs and media companies); and, most significantly, real people online to spread all that goodness, which makes the Social OS work.

The New Common Medium For Transmission

That’s why each Social OS is defined, first and foremost, by who’s on it, and what the connections mean.  But beyond that, each social operating system can make identity, personal information and interests, relationships, and other data and actions available to applications.  And third, and most importantly, is the role of the Social OS as distributor.  Because Social OS’s have transformed the primary navigational coordinates of the Web from document-to-document links to person-to-person, the Social OS becomes the medium for propagation.

As recently as a few years ago, large media companies saw some parts of this wave coming, and they thought the answer was for each of them to build their own proprietary social network.  But relationships between people aren’t proprietary to media; rather, they are the conduits through which all media travels.

And that puts in perspective what Mark Zuckerberg recently said, about how media is the next big application for his Facebook Social OS:

“Some of the earliest examples we’ve seen are with games.  It just leads to massive disruption.  And I think, over the next 2, 3 years, we’re going to start to see that in more and more industries, and the next ones I would expect are going to be media-type industries.”

Or, as we say at my company, Wetpaint, we are becoming the Zynga of publishing, leveraging social operating systems like Facebook, Twitter, and YouTube to build a powerful media business on top of them.

Reinventing the Media Industry For a Social World

The rise of the social operating system has two implications for old (and even some new) media companies, who are mostly still trying to figure out what to do with all this.  If the idea isn’t to be a social network, then how do they use Social OS’s to make their business more successful?

Social maven Jonah Peretti, co-founder of Huffington Post and CEO of BuzzFeed, points out that different social networks specialize in different content:  Facebook users share “what you want your friends to think you like … content you can wear as a badge of honor,” while Twitter is a platform for topic curators and wholesalers in the information trade, and LinkedIn has a strictly professional domain.

For its part, YouTube has its own character: with most consumption anonymous, it’s largely an open public repository, and much of the networking that forwards YouTube videos from person to person happens via email, Facebook, and other networks.

And, as Google gets into the fray with its Google+ Project, presumably it is meant to specialize in closed groups, when full public exposure isn’t in order. If it works, it will likely find its best traction in topics like health & wellness, parenting, or certain hobbies.

For media companies, the key is knowing which Social OS’s to bet on; and then tuning content, packaging and distribution for them.

For celebrity entertainment and gossip at Wetpaint, we know Facebook is a natural match for mass consumer promotion.  On the other hand, for industry analysis, like my blog posts, I’m not surprised that Facebook is relatively unimportant:  for most of my readers, my posts wouldn’t fit in among family photos and Farmville accomplishments.  Twitter and LinkedIn do far better for heady topics like the future of media.

High Stakes:  The Future of an Industry

The last decade of audience fragmentation and content de-bundling on the Internet has ravaged media, particularly in a world characterized by fierce competition for the love of Google’s robots.

When Mark Zuckerberg recently spoke at a Facebook event in Seattle, he said:

“The last 5 years have been about connecting all these people. The next 5 years are going to be about all the crazy things you can do now that these people are connected, and I think it’s going to be cool.”

In a world powered by social operating systems, the prize is that, when we execute well, we get to be hooked into people’s lives.  Media companies can earn constant places in consumers’ newsfeeds, along with a button asking them to consider sharing their experience every time they see us. I think that’s going to be cool.

 

 

 

Prediction: Facebook Will Enter the Search Market Next Year

This article was recently featured as a guest post at TechCrunch.

Next year, search advertising will be a $15 billion market in the U.S. alone, growing by 14 percent, according to eMarketer.  And, if Facebook can capture half the share of that market that Google has today, it could easily add an extra $25 billion or even far more to its value.

For most any CEO who could have even a modest chance of succeeding at it, that payoff would be reason enough to take a serious look at entering the search category.  And yet, while I’m sure he wouldn’t scoff at the extra revenues, profits, or valuation, I suspect that Mark Zuckerberg finds something else far more motivating than just increasing the financial value of his company.

And that’s what will propel him next year to make a completely disruptive entry into the search category.

So if it’s not for the financial value, then why am I so certain that Mark Z. will make a play for Google’s home turf?

It’s because it’s so irresistibly good for his users.  And that’s the most important principle that seems to guide his product development.

 

The Five Reasons For Facebook To Enter Search

With that in mind, here are the five specific reasons why Facebook should enter search next year:

1)      To make Facebook the ultimate home page. Consumers make Facebook their home base.  Half log in every day; and users come to Facebook 70 percent more times per day than even to Google. They stay twice as long as even users of Yahoo’s vast network of email, content, and more.  Facebook has become the Connected Web’s de facto operating system.  But right now, its “start button” is limited to what other people put in your newsfeed.  Part of being home base is being a launching pad to go anywhere you want.  So Zuckerberg will need to give users a great connection to the rest of the Web – whatever their intent.

2)      To fix a broken feature. Facebook has a search feature today (powered by Bing); and a few people already use it for Web-wide search, even though it isn’t very good.  It needs significant upgrading, and Zuckerberg knows it.  Having a feature this important be this incomplete creates an unacceptable user experience.  It must be fixed.

3)      To improve people’s life online. Facebook has an enormous data set that it can use to deliver better search results than anyone on the planet.  Facebook can see everything that Google can see in terms of pages and links, but with a whole extra dimension of human connection that is impenetrable to Google.  Facebook knows what your friends like, and what people like you like.  And it knows the difference between real interest and spam.  Translating that knowledge into great results will improve online life for his users.

4)      To fully connect the world. More than anything, Zuckerberg and his company’s DNA are all about providing services to connect users to each other and, increasingly, to the world at large.  Serendipity and sharing aren’t enough: sometimes people know what they want to find.  Facebook must have a search feature to fully enable connection.

5)      To add to his immense data set. Search will not only help users; its users will help Facebook. Specifically, it will provide Facebook with even more data about what people want so Facebook can further personalize itself for everyone.   Go ahead and cue the creepy privacy music, but remember that so far most users have been happy to make a privacy tradeoff to get valuable personalized service.

With Facebook Connect, Open Graph, and Like buttons, Facebook has already shown its vision to fully connect to the rest of the Web. The next step is to help people better access it.

 

Facebook: The Social Operating System For Connected Lives

Facebook began as a social application, but it’s now in the process of becoming a Social Operating System for the Web at large.  Offering world-class search is the next step in its evolution as that “Social OS.”  The Web is now organized around connected people, not documents – and Facebook is the OS that links those people together.

Once fully connected, can you imagine how Zuckerberg must think about a Web all wired-in through Facebook’s central hub?  He’d know the time spent on every page; the usefulness of every link; the patterns of every user.  He’d have a real-time system that provides feedback on every recommendation.  You know what’s cooler than a billion connections on the Web?  How about a quadrillion!

The value of that data will be immense in making recommendations to users, serving advertisers, refining search itself, and enabling next-generation social applications.  It will give Facebook a competitive advantage over every other Internet company in building a map of where the gold is buried – in the form of the content each individual user wants – among the trillions of pages on the Web.  But more importantly, it will allow Zuckerberg to serve his users.

 

“Social Search” Is More Than Just Links From Your Friends

The idea of a socially-powered search is not brand new for Facebook.  Bing and Blekko have both incorporated features that bring your friends’ Facebook content into the search results.  And while that is one modest way to improve the search, its impact pales in comparison to the full potential of what Facebook can do to help you by fully exploiting its social data set:  It can individualize search results just for you, by using not only data about you and your friends, but by using the full dataset of people you haven’t even met yet.

Let’s look at it competitively.  Google and Bing have, with limited exceptions, held themselves to the standard that the results should be the same for everyone because they work in an anonymous environment.  A friend from Microsoft tells me that Bing has a rule that, with the exception of bucket tests, the top ranked result must be the same for everyone.  This rule, he says, was copied from Google – where it fits well with Google’s increasing positioning of itself as the great defender of identity control, compared to Facebook’s ethos where everything is public.  But that differentiation hands Facebook an incredible opportunity:  in the Facebook environment, it’s not only accepted but expected that everything you do is customized for you alone.

Can you imagine the power of combining Amazon-like personalization with Facebook’s deep dataset to offer better results?

 

Facebook Can Redefine Search in a Social World

That’s why beyond just improving a search algorithm, Facebook’s greater opportunity is in redefining the category.  The last decade of Web use has been defined by Google’s clean white splash page with a single query field, and the 10 blue links which follow. But just as that approach from Google displaced the prior generation’s directory pages, it’s time for a breakthrough experience.  And Facebook is the natural player to provide it.

I’m sure the engineers at Facebook are already visualizing what search could be in a fully connected world. Searches could be proactive, prompted by items shared by friends, rather than awaiting a text field completion. Searches can favor brands and publications that you like, or your friends like. But most importantly, searches can be predicted based on people like you, people who are located where you are, or people with similar interests, profiles, and behaviors, without you ever even knowing them.  All of these are ways that Facebook can fundamentally redefine search, thanks to its knowledge of each user’s identity, interests, and behaviors.

 

How It Could Happen in 2012

But building a search engine that takes (a difference-making) advantage of the social graph takes lots of time and money, as does building a new operational infrastructure, Web crawler, and advertising engine to support it.  And, even more significantly, this is one where Zuckerberg will need to get the privacy implications right from the start.  Facebook is currently building its rep with major advertisers on its social network – and that’s a great start, because that will provide a captive customer base to transition into its search engine right at launch.

A competitive search engine is one of the most ambitious projects you can imagine – the degree of difficulty is mind-boggling, and the cost is hundreds of millions or more.  For Facebook to best Google, it would need to catch up in substantial ways before it could shoot ahead of the leader, even with its valuable dataset. But that’s only an impossible challenge if it has to do it all alone.

And Facebook doesn’t have to.

It already has an alliance with the #2 player in search, Microsoft.  And – in the way of “the enemy of my enemy is my friend” – it has a common interest in outperforming Google.  And Facebook and Microsoft have enough separation between their businesses that they could complement each other rather than compete.  Indeed, Facebook’s increasing strength in its advertising engine could be a huge lift to Bing’s struggling monetization – offering hope of raising Bing’s monetization toward Google’s levels.   The two truly are more valuable together, and it’s no surprise that smart people have begun to speculate on a Bing-Facebook combination, a step beyond a partnership.  Working with Bing for its search entry could save Facebook billions of dollars of initial R&D and speed its entry into the category by years – and by many dozens of engineers.   And any agreement they’d sign would likely still give Facebook the option to create its own search engine down the road.

 

The Chilling Threat To Facebook’s Enemy

Regardless of how Facebook structures its efforts – and with whatever degree of help it gets from Microsoft – it will be able to create a search capability that will be significantly different from anything we’ve ever seen.  And it will shake the tectonic plates underneath Google’s Mountain View headquarters, even as it vies to earn users’ adoption with better, more personalized results.

Google will not perish in the digital earthquake without a fight, though. Its recent Google+ launch, for example, shows just how boldly Google intends to enter Facebook’s home territory. That, of course, makes it even more imperative for Facebook to counter-invade by pushing into search.

Looking forward, it’s clear that search and social won’t always occupy separate spaces. Indeed, for consumers, over time, they will converge; and the blended (or, just as likely, reimagined) product that emerges will serve as a home base that will serve as a jumping-off point to everything that’s important and relevant on the 21st century Web.

It’s fascinating, and it’s all about to unfold. In the meantime, while Zuckerberg quietly forges ahead, and readies Facebook’s game-changing search entry, Eric Schmidt, Google’s former CEO, is publicly lamenting lost opportunities to catch Facebook. The diverging fortunes of these two digitally defining companies could not be more apparent right now.

Facebook’s New Media DNA

Credit: James Duncan Davidson/O'Reilly Media, Inc

For a company that has sworn it’s a communications utility, and not a media company, Facebook sure does have some outstanding media talent on its Board of Directors.

Included, of course, is The Washington Post Company’s Don Graham, who is successfully bridging the print and digital generations.

And Now Reed Hastings of Netflix.

I’m wondering whether Mark Zuckerberg has changed his mind, or whether something different is going on.

And, as I’m thinking over what an increasingly social world means, I’m asking myself whether a communications utility is really any different from a media company.

The answer may be “no.”

Here’s why: Increasingly, the “distribution” part of media is being handled by lots of point distributors, each passing along to their own network, rather than by big companies that own dedicated equipment or spectrum like newspapers and broadcasters did.

And, as for content creation, we all know it’s gone from an oligarchy of anointed editorial sources to legions of content creators and commenters.

For Reed Hastings, he has a ton to learn from Zuckerberg about how to re-imagine content creation and distribution.  But Hastings, for his part, can help Zuckerberg learn how to rapidly build and scale a powerful business model that is increasingly playing in the world of content.

After all, no matter how Facebook likes to think of itself, it’s increasingly in the business of connecting audience to content.

So, that pretty much makes it a media company.

However the company defines itself, though, it’s clear to see that Facebook is playing a key role in digital media’s evolving model.  And it’s a smart of Mark Z. to learn from Hastings – who is one of the best in the world at innovating to serve today’s consumers in new and untold ways.

The New Generation of Media Moguls

Simon Dumenco wrote at AdAge this week about the billionaire benefactors of old media:  the Sulzbergers, Rupert Murdoch, Bruce Wasserstein, Sam Zell, John R. MacArthur, and more.  He laments their aging, and in a subhead asks “where’s the next generation of Richie Riches willing to take losses on worthy media properties?”

It’s easy to take a melancholy view that the good old days of media are behind us.  But “who wants to take a loss?” is the wrong question.  Let’s get real:  The future of media had better not be about finding philanthropists to fund it.  It needs to be about creating successful businesses.  Those successful businesses will create wealth, not consume it, when they deliver content and experiences that are worth paying for by advertisers and consumers alike.

So who are these emerging emperors of the digital media age so far?

  • Steve Chen & Chad Hurley – YouTube defied the idea that media is created in publishing houses.  It’s a liquid marketplace for video content that consumer can’t get enough of as evidenced by 20 minute average visits.  To do that, they’ve merged content created by consumers, entrepreneurs, and media industry alike. While it hasn’t proven to monetize yet on-site, the concept alone was rewarded with a $1.65B purchase.
  • Mark Zuckerberg – Facebook reaches over 100 million per month in the U.S. alone, and is an addictive communications medium by which we connect to the world around us. Mark redefined content so broadly that it now includes anything anyone would want to share – whether it’s personal photos or articles or games or brand experiences.
  • Biz Stone and Evan Williams – Twitter has become the de facto network for propagating fresh content among distributors.  It plays a major role building audiences not only for itself but for every other media property.
  • Steve Jobs – Apple has redefined the music industry and remade the consumer experience of music.  By changing how music, video (more recently), and book (soon) content is consumed, Jobs has exploited consumers’ love of experience:  it’s not just the content that matters, but how we consume it.
  • Jeremy Stoppelman – More than anyone else, Yelp has successfully merged the notions of community and content:  and in the process, they have created the most successful example of a local content empire without an empire’s worth of payroll expenses.
  • Mark Pincus – Zynga has redefined media consumption by creating games in the social networks, and by moving well beyond advertising to get revenues.  Mark has literally created a new category of media.

Each one of these figures has created a new model that matches the digital age.  And, in fact, every one of them has done it by breaking with traditional publishing to interleave content and consumption so that they are inseparable.

That interactivity of content and consumption is a defining difference between the new world of media and the falling empires of legacy publishing.  Those who master the synergy between their audience and their content can transform their consumers into far more than just a target for advertising:  their audience participates in building the empire itself.

(Missing anyone?   Post a comment with your thoughts.)