Home Facebook’s 4 Biggest Risks

Facebook’s 4 Biggest Risks

Facebook, whose stock is trading on public markets for the first time today, has had an incredible rise – from zero to 900 million users in just over eight years. In the fast-changing technology world, though, today’s Facebook can quickly become tomorrow’s MySpace. Make no mistake: Everyone’s favorite social network faces substantial risks. Here are a few.

Missing the Boat on Mobile

Facebook’s biggest driver of usage – and revenue – comes from the old, desktop-PC web. But as people start spending more time on mobile devices, and more people get online for the first time only on mobile devices, Facebook could lose its edge. The biggest risk, then, is the rise of a mobile-only or mobile-first social network that steals the attention and hearts of its users.

The good news: For now, Facebook is doing pretty well on mobile devices. It has more than 500 million mobile-active users as of last month; more than half its users. It recently acquired Instagram, a mobile photo-sharing network, previously one of its biggest existing threats. There’s also a potential upside: If Facebook were to become a mobile platform – the way Apple’s iOS and Google’s Android are – it could open doors for many future businesses.

But that’s also a big challenge. And right now, Facebook’s mobile products aren’t exactly great. Facebook’s iPhone app, for example, is slow and uninspired. Something better may come along that Facebook can’t beat, clone or buy. Meanwhile, Facebook admits in its IPO filing that it does not “currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven.”

Growing its Business Beyond Advertising

The vast majority of Facebook’s revenue – 85% last year – comes from advertising: Those little ads you see on the right side of your Facebook window. It’s a decent business, with $1 billion in profit last year, but it’s not a killer business. The big question is whether Facebook will be able to build additional revenue streams as big as or bigger. To make a Microsoft analogy, Facebook has its Windows, but can it find its Office?

Google, for what it’s worth, hasn’t been able to build another business as big as its ad business. But it hasn’t needed to yet. And there’s a big difference between Google’s ads and Facebook’s ads, as startup investor and founder Chris Dixon explains in a recent blog post.

“The good news for Facebook,” he writes, “is there is a lot of room to target ads more effectively and put ads in more places. The bad news is that, if there is one consistent theme in both online and offline advertising, it’s that ads work dramatically better when consumers have purchasing intent. Google makes the vast majority of their revenues when people search for something to buy or hire. They don’t have to stoke demand – they simply harvest it. When people use Facebook, they are generally socializing with friends.”

Will Facebook figure out how to put its ads near a service where people have more purchasing intent? A social search engine, for example? Or will Facebook’s payments business – 15% of its sales last year – grow to become bigger than its ad business? It will probably be years before those questions find answers.

Losing its Leadership and Recruiting Edge

Facebook has already weathered significant staff turnover: Many early employees, already rich from the company’s success, have left to do other things, such as starting their own companies or becoming professional investors. Facebook has, for the most part, been able to recruit good replacements. With Mark Zuckerberg at the helm and COO Sheryl Sandberg as deputy, Facebook has seemed stable for years.

But Sandberg is about to become a billionaire. Many other employees will become millionaires. And the recruiting lure of pre-IPO shares is gone. Will Facebook be able to keep its leaders and continue recruiting the brightest engineers at reasonable prices? Or will it gradually lose out to competitors?

All the Small Things

Those are three big risks for Facebook. But in its IPO filing, it lists many others, some large, some small. These include: Failing to keep or attract new users; failing to introduce new, improved or popular products; potential for concerns over privacy, safety or security; technical problems (a big challenge for MySpace and Friendster that helped Facebook leapfrog both); and loss of advertisers.

In general, things seem to be going well for Facebook, so it’s not as though users, fans, employees or investors should be particularly worried. But it’s important to keep an eye on the risks and the competition. In this industry, for a site that has grown as fast as Facebook has by blowing past competitors, it’s important to bear in mind that what goes up can easily come down.

Related: Tech’s Doomsday Plots: How Your Favorite Tech Giants Could Lose Their Edge

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Get the biggest tech headlines of the day delivered to your inbox

    By signing up, you agree to our Terms and Privacy Policy. Unsubscribe anytime.

    Tech News

    Explore the latest in tech with our Tech News. We cut through the noise for concise, relevant updates, keeping you informed about the rapidly evolving tech landscape with curated content that separates signal from noise.

    In-Depth Tech Stories

    Explore tech impact in In-Depth Stories. Narrative data journalism offers comprehensive analyses, revealing stories behind data. Understand industry trends for a deeper perspective on tech's intricate relationships with society.

    Expert Reviews

    Empower decisions with Expert Reviews, merging industry expertise and insightful analysis. Delve into tech intricacies, get the best deals, and stay ahead with our trustworthy guide to navigating the ever-changing tech market.