Facebook Could Have Controlled the World by Now. Here’s the One Big Reason It Failed.

Forecasting today’s biggest business and tech trends.
Feb. 26 2014 4:12 PM

Facebook’s Identity Crisis

User identity was the key to Facebook’s global domination strategy—until it wasn’t.

Co-Founder, Chairman and CEO of Facebook Mark Zuckerberg.
Facebook CEO Mark Zuckerberg speaks at the Mobile World Congress on Feb. 24, 2014, in Barcelona, Spain.

Photo by David Ramos/Getty Images

On May 9, 2008, Facebook won the Internet. Or at least it should have.

On that date, in an open letter to the developer community, Dave Morin, then head of Facebook’s platform efforts, announced the release of Facebook Connect:

Facebook Connect is the next iteration of Facebook Platform that allows users to “connect” their Facebook identity, friends and privacy to any site. This will now enable third party websites to implement and offer even more features of Facebook Platform off of Facebook.
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Facebook Connect was a radical evolution of Facebook’s API. It allowed third-party developers to use Facebook as the identity and login system for their sites and apps. For developers, there is often no greater challenge than getting users to sign up and invite their friends. Integrating Facebook Connect solved that problem. Why recreate your contact lists by hand when you could just sign in and let Facebook do it? Facebook Connect was easy for users, it was easy for developers, and it could have made Facebook as central to the app ecosystem as Google is to the Web.

To this day, Connect is the smartest business move Facebook has ever made. Over the years, though, it’s become the biggest opportunity Facebook has ever squandered.

Facebook failed to leverage Connect into de facto distribution across the Internet. It failed not because it underestimated the power of Connect or the upside of achieving platform ubiquity. It failed because it overplayed its hand in the short run: alienating developers and insisting on the primacy of the central Facebook over the distributed Facebook. It treated Connect like a value-add rather than an existential necessity. In doing so, Facebook risked selling short its own future.

Looking back, we can see why the company felt everything was fine inside the walled garden. By late 2007, on the heels of Microsoft’s $240 million advertising investment, the company had an informal valuation exceeding $15 billion. It would grow to more than $40 billion by 2010, by which time Facebook had more than 500 million active users. Highly active users—more than 50 percent of them logged into Facebook every day. The average user spent more than 700 minutes a month on the site and posted at least three times a day. Collectively, users shared 30 billion links, posts, and pictures each month.

And all of this was happening on Facebook’s site, within the confines of the Facebook experience. That heavy usage pattern—implying Facebook’s apparent position as the “home page” of the Internet—instilled a heroic degree of overconfidence in Facebook’s managers and investors. But it should have scared the hell out of them. It placed 500 million eggs—soon to be more than a billion—in the same basket, because everything was taking place inside Facebook: on its site or on its mobile app. That meant that any threats to any aspect of Facebook’s user experience would be threats to all of Facebook.

But nobody thought that was much of a problem. The more common critique of Facebook, especially in the runup to its initial public offering in May 2012, was to point out its weaknesses in mobile—mobile advertising in particular. By 2012, Facebook had become an advertising company. Analysts were scared that mobile users had a lower tolerance than Web users for seeing ads and less of a reason to click on them. (Facebook’s reticence about the health of its mobile advertising business seemed to validate those fears.)

But Facebook shouldn’t have had those weaknesses in the first place. More than half a million developers had begun to use Facebook’s API by 2010. By the time the IPO came around, Facebook should have been integrated into every site and app around. It wasn’t then, and it’s not today, and that’s largely Facebook’s fault.

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