The road to greatness is littered with failed online empires. Take a good look at the failures and learn from their mistakes:
- MySpace confused rampant user growth with brand power. The service stopped evolving to meet user needs and is now an embarrassing footnote in digital-business history. Users don't really love you. Loyalty is an illusion. Never rest on your laurels. Always stand ready to change with the times.
- Netscape broke new ground in browser technology and grabbed a huge market share in the early days of the browser wars. Then Microsoft
moved in for the kill, armed with ruthless tactics and superior resources. Now Netscape is a niche product owned by another failed online titan. Don't let the same fate befall Facebook. Watch your back for incoming daggers. You are never too big to fail. (Nasdaq: MSFT)
crushed the DVD-rentals market and moved on to owning the digital version instead -- but CEO Reed Hastings moved way too fast and lost a boatload of important customers. That company is still recovering from an otherwise brilliant CEO's overconfident moves. Don't think you know it all. Even if you control 57% of shareholder votes, ruling with an iron fist will bite you at some point. (Nasdaq: NFLX)
You have smart advisors. Listen to them.
So many times in its history has Facebook suffered from either bad judgment or bad advice. You probably know the greatest hits:
- The "Beacon" plug-in presumed users wouldn't mind publishing their purchasing history in a Facebook newsfeed, regardless of whether they were logged into the social network at the time they bought. Users had other ideas.
- A 2009 change in Facebook's terms claimed permanent dominion -- and unrestricted, royalty-free right to profit from -- any content posted to the network. The implication? Leave Facebook, and your content may or may not leave with you.
- Finally, there's the specter of a PR smear campaign aiming to position Google
as a serial violator of privacy rights, and thereby diminish the importance of Facebook's own gaffes. Two former Silicon Valley journalists orchestrated the campaign. (Nasdaq: GOOG)
Two words: Don't change. Facebook has grown from zero to 901 million active users in a handful of years with little influence from the outside world. Just as cynical analysts took Zuckerberg to task for wearing hoodies to IPO road-show outings earlier this month or shelling out $1 billion for the revenue-less Instagram without the board's consent last month, the end result is that the same company that could've cost Yahoo!
There will be pressure to conform and perform. Shareholders will demand quarterly excellence. Facebook will be expected to ramp up its monetization efforts to justify its lofty valuation. There will be groundswell to take on LinkedIn by beefing up its white-collar appeal to improve its revenue per user.
However, as arrogant as Zuckerberg may seem to be, he's ultimately been rewarded for doing things his way. That can't change. Facebook has grown so popular because he continues to operate the company with the same renegade mindset as if he was still running the whole thing out of his Harvard dorm room.
A lot of that attitude may wear down over time, but Zuckerberg needs to resist conformity every quarterly report along the way.
No matter how you slice it, Facebook clearly has immense potential. However, with that unproven promise comes considerable risk. However, our senior technology analyst has identified another opportunity in social networking that he thinks holds even more promise than Facebook, which he detailed in a brand-new research report. If you want to see which stock he thinks could end up leaving Facebook in the dust, grab your free copy today.