Facebook made mainstream news headlines in April, 2012, when it was announced it had bought the popular photo sharing site Instagram for $1 billion dollars. Usually, there’s no stronger sign of total dominance in a business sector than a company suddenly purchasing a direct competitor outright. However, it could be argued that a company in Facebook’s position shouldn’t have had to take such an action, unless it felt threatened.
Facebook passed Flickr several years ago to become the largest photo sharing site on the Internet. While Instagram wasn’t anywhere near Facebook’s size, it had shown a growth rate that was quickly outpacing that of Facebook. Even an objective reading of Mark Zuckerberg’s post announcing the purchase seems to indicate that Facebook felt threatened by Instagram’s rapid growth.
A few short days after the purchase was announced, Facebook shipped its own mobile photo-sharing app. If it were more confident in the company’s position, this app would have been all Facebook needed to defend itself against Instagram. The purchase revealed it wasn’t very confident at all, and exposed a weakness that could potentially be exploited by another competitor.
2. The Fall of Zynga
Historically, social gaming company Zynga has been a major revenue source for Facebook. Whenever Facebook members play a Zynga game like FarmVille, they are encouraged to spend real money to buy in-game features and upgrades. For every transaction a member makes to Zynga, Facebook gets a cut. Until recently, this business model has been a raging success for both Zynga and Facebook.
However, in its second quarter financial results Facebook showed no growth in this type of transaction revenue. As growth in casual gaming has moved away from the desktop, it has moved toward the iPad and iPhone. This has loosened the Facebook/Zynga stranglehold on this market and made Apple the new leading middleman for these types of transactions.
While the revenue hasn’t dried up completely, it looks like Zynga itself might not be weathering the transition well either. The company has seen continued success with games like “Words With Friends” but it’s recently come under fire, being accused of publishing misleading financial statements.
As revenue from Zynga and other game companies dissipates, Facebook risks being solely dependent on advertising for its income.
3. Marginalized By Integration
In June, Apple announced that Facebook integration would soon be coming to its iOS 6 and Mountain Lion operating systems. While having deep integration with iOS is valuable for Facebook in growing its user activity, it ultimately takes power away from Facebook and puts it in the hands of the individual users.
For example, with members no longer needing to visit the website or app to benefit from Facebook’s services, the company stands to miss out on valuable ad revenue. Additionally, an iPhone owner can download all of his or her Facebook calendar and contact information and potentially delete his or her Facebook account. A member could even migrate that data to a competitor — like Google+. Facebook currently prohibits this type of information migration on its website and its mobile app.
Buoyed by the successful iOS integration of one of Facebook’s competitors, Apple announced at its developer conference that there could be more integration deals like this in the future. If this trend continues, it could have a leveling effect on the dominance of Facebook as a whole.
Facebook’s downfall is far from assured. However, the company will certainly face more challenges to its position in the social media hierarchy as more and more people migrate their activities to the mobile space. It might be prudent to diversify your social media strategy; don’t rely on Facebook always being king. Be prepared to move with your customers to other networks as they branch out and explore new locations, both on the web and in the mobile world.
John Morrison: John is a freelance photographer, writer, and traveler based out of Chicago. He is a graduate of the Pratt Institute with a BA in Visual Communications. Before joining Sprout, John previously worked for Apple Inc. as a lead creative and business associate. He likes old Polaroid cameras, New York style pizza, and typing in the third person. Connect with him on Twitter: @localcelebrity