Friday, November 16, 2012

Facebook Inc (NASDAQ:FB) Posing A Problem With Its Business Model

Mark Cuban seems to be pretty frustrated with the way Facebook Inc (NASDAQ:FB) has been treating its business customers and brand partners.

As Facebook has designed things to be, if brands wish to reach out to all of their target audiences, they would need to shell out an amount.

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It is not only Cuban, who is feeling betrayed, there are a lot of other brands as well, all the more because it was not the deal that they had agreed upon. They have put into a lot of money and time in building a large audience of followers on the social network, only to have the rug pulled out from below their feet.

Recently, a major brand was complaining since it had given four years building a flower-base of millions of users, upholding its presence on Facebook and on expensive television adverts. Now Facebook has simply tossed a switch and the brand’s reach has been curtailed by 40%, immediately.

Similarly, there are many brands that are done with the frustrating Facebook regulations. They are obviously looking for other alternatives.

Many people may argue that Facebook has integrity issues. The social networking company has played a classic bait-and-switch trick, in which one has the freedom of changing the rules after getting everybody to sign up. It is the kind of thing that can be expected from a user-car dealer but definitely not from a reputed publicly traded company like Facebook.

Facebook seems to have much bigger problem than the lack of integrity. It has a business model problem.
For sure, the social networking giant will rake $5 billion this year. However, the site will celebrate its ninth birthday in a few months and the company still is experimenting with new ways of generating revenue. There are things that Facebook could incorporate to make itself a better platform for advertisers. However, such things would repel members. That is the challenge here. 

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