Max Gladwell

It’s good to be king. Until your subjects revolt and storm the castle. Our recommendation? Restructure as a nonprofit.

Facebook has come increasingly under fire on many fronts over the past couple weeks. Articles in Fortune, CNET, and a blog post by Umair Haque (part of a series) are criticizing the business model, the ad model, the developer platform, its corporate values, and CEO Mark Zuckerberg himself. How any of this matters to you depends largely on where you’re coming from. For our purposes, Facebook is a means to an end. It is one of the larger vehicles of the social Web, which increases our collective ability to more efficiently organize, communicate, market, and affect change. We’re not as concerned with its ability to monetize traffic or justify it’s $15 billion valuation. However, Haque raises several ethical concerns that run deeper than the bottom line. But first let’s start at the top line.

Fortune points out some of the “cracks” in Facebook. These range from its inexperienced CEO and dorm-room corporate culture to the underwhelming performance of its ad platform that was supposed to be a “once-in-a-lifetime media revolution” and the more recent frustrations from the developer community i.e. the folks who build widget applications that provide additional utility. “‘Developing on Facebook is like playing a game where the rules are changing all the time,’ says Jia Shen, co-founder of widget maker RockYou. He’s turning his attention increasingly to social networks like MySpace that use the OpenSocial standard promoted by Google.”

The business side does not look good. Facebook has to support a ridiculous valuation based entirely on advertising revenue. “Jeff Ratner, a managing partner at WPP’s MindShare Interaction, whose clients include Motorola and Unilever, spends less on Facebook than he did six months ago. ‘As soon as they stepped out of Beacon, Facebook doesn’t look that different,” Ratner says. ‘It just becomes another buy, and there are cheaper, more efficient ways to reach eyes.’”

As MySpace appears to have discovered, social networking does not a business model make. It is a feature not a product. That is precisely why it launched MySpace Music. All of a sudden, a huge group of MySpace users have a reason to be there, aside from socializing and ignoring ads, and MySpace has a way to monetize all of that traffic through relevant content, commerce, and related activities. MySpace is moving from feature (social networking) to product (entertainment resource). It’s uncertain whether Facebook can do the same.

Meanwhile, the source of much of Facebook’s rapid growth, it’s developer community, is not only becoming frustrated but they’re broadening their horizons. As the entire Web becomes a platform for their wares, Facebook is just another place to sell them. “Activity in the site’s official developer forum has declined sharply, [according to one developer]. New applications are less likely to become successful, and now that there are more destinations for social applications–from gaming sites to OpenSocial–developer activity no longer has a single hub.” Not to mention the distraction many may have in building apps for the iPhone and mobile Web.

Viewed through the Max Gladwell lens, issues of valuation and monetization are not entirely relevant or important. If it’s not Facebook, it will be someone else. The gates of social networking are open with new channels opening up every day. Fortunately for everyone, Facebook has done us the favor of aggregating and organizing an audience that so many others will be able to monetize and benefit from. In terms of corporate values and the company’s strategies, though, Umair Haque is one of the company’s most vociferous critics.

Facebook wanted to rule the world; to dominate it; to be the next Microsoft. That’s not revolution – it’s just strategic fascism. And it should be intuitive that fascism cannot hold in a world where power is getting more and more radically liquid by the nanosecond. It’s a delusion; a kind of deep corporate psychosis; the blind fetishization of power and coercion, with no concern for value creation.

Facebook is just a tiny, trivial example of a profound economic shock. Given business as usual’s relentless march of evil, we are all increasingly losers – as consumers, producers, citizens, and people.

That’s what the Facebook Effect really is: today, the price of evil is the very real loss of many different kinds of value. Put another way, advantage isn’t in technology, resources, or industry forces: it begins, and often ends, with you – it’s in your DNA.

Whether or not Facebook’s intentions are evil or not appears to be irrelevant, since the competition in this space now includes any and every website, not to mention the plans that Google and Yahoo! have for getting their social acts together. Facebook could go the way of Netscape if it’s not careful, with Google and Yahoo! playing the role of Microsoft. MySpace, meanwhile, will become something more than a social network in order to survive. Considering its predicament, though, our contrarian suggestion is that Facebook goes the route of a not for profit.

As difficult as this might be for investors to swallow, it makes total sense and would be celebrated for generations. Not much has to change, since there are no profits and the site already gives everything away for free. Facebook could still be the platform for profit-driven, application-based businesses, and it can leave the current ad platform in place. But the mission of the company would shift dramatically. Instead of ruling the world, it will seek to better it. The organization will generate tremendous good will from members, government, and the business community alike, which will generate significant ad revenue that can be reinvested into the infrastructure and otherwise allocated according to the new mission. It will enable Facebook to attract and retain new members, in lieu of its noble mission, thus giving it a competitive edge.

This, of course, will never happen. Right now, it doesn’t matter that Facebook doesn’t make money. There is tremendous value in its size and scale, even though we feel it’s value has peaked and is waning fast. We’ll not be surprised when Microsoft acquires it once and for all…and in the very near future. In Haque’s eyes, this will be like Anakin Skywalker joining the dark side. The prophecy will be fulfilled. Because Facebook as it stands today is basically a nonprofit. Despite its questionable business practices and recent missteps, Facebook does more good than harm. Whether that’s their intention or not doesn’t matter, because it has a life of its own. Call it the force. It’s a free and (largely) open venue where people, companies, and organizations can connect and engage with one another for all sorts of good reasons. For the social media-savvy, it’s a source of traffic and income. For programmers, it’s also a creative outlet. Which way Facebook goes is beyond anyone’s control. Even Zuckerberg himself is at the mercy of his fate. Will Facebook learn from its mistakes and become an intentional force for good? Or will it fulfill its destiny and go to the dark side? That is the question.

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