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Harvard Business Review:



Facebook's Profound Strategic Error

Posted by Umair Haque on May 6, 2008 8:40 PM

Over the last year or so, I spent a great deal of time discussing in somewhat painful detail Facebook's relentless evilness; and how, despite the mega-hype surrounding Facebook as the next big thing, evil would ultimately come back to eat Facebook from within - because, today, evil itself is a profound strategic error.

Today, there's an interesting post from 20bits outlining some fairly strong evidence of exactly that: declining platform growth. In the dismal language of economics, "evil" means that Facebook's platform is deeply biased against both developers and consumers in favour of Facebook - and so, unsurprisingly, it has fallen prey to adverse selection. The apps that benefit most from joining Facebook's platform are the apps that create the least value.

As the post points out: "...the fact that Facebook continues to change the rules and selectively break them for their own benefit means the risk [for developers] is comparatively higher."

I think every boardroom should take a vital lesson away from this simple, sad story of profound strategic error - the Faceboook Effect.

What's the lesson?

Here's the simple version. 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.

Sarah Lacy offers a different perspective - that maybe declining developer numbers are good for Facebook, since they might point to maturity for the platform. It's a good argument - and I wish it were true. But that would imply competition sorting winners out from losers. Rather, the economics - Ponzi economics - point to a very different strategic truth. Given Facebook's relentless march of evil - every app is increasingly a loser.

And that brings us to the deeper lesson. 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.

No amount of gloss can repair rotten DNA - in fact, Facebook's recent poaching of Google's PR head is, if anything, a stark confirmation of Facebook's relentless evilness. Facebook's problem isn't that people perceive it to be evil: it's that it is evil.

The Facebook Effect is vital because business is way (way) behind the curve in thinking about the price of evil. For example, here's an essay that YCombinator's Paul Graham wrote about the value of good...last week.

But at least investors are belatedly getting a tiny bit clued in to the price of evil, even if it's probably far too little, way too late. Corporate boardrooms are, for the most part, are still oblivious to the value of good vs the price of evil.

I think that must change - and it will change - whether or not yesterday's industrial-era dinosaurs can evolve enough to survive the extinction event. What do you think?

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