By V Wolfing

Here Today, Gone Tomorrow
To set the tone of the proceedings early on, this will not be another sycophantic, congratulatory note of praise on the phenomenal success of Facebook over the last few years. Rather, it will be a frank, candid assessment of where Facebook is as as a company and where they can expect to go in the near future. Ultimately, Facebook has nowhere to go but down. Furthermore, the biggest supporters of the ubiquitous social networking giant know this, and are hoping you don’t. It’s not shocking that The Social Network came out recently, and that it’s been met with near universal mainstream applaud.

When Time Magazine gets in on the boot licking, you know something’s wrong. Ultimately, Facebook faces the very real danger of catastrophic near-term failure, for a number of reasons. This is neither a “sour grapes” dig at Facebook from a jilted former employee or a nit-picking critique from some basement-dwelling creature with no life. Rather, it’s a sober look at a technological juggernaut approaching a critical juncture. As a thought exercise, let’s contemplate how it might go bust or at least destroy a few investors who haven’t looked at the whole picture.

1. Decentralization of the Internet
Facebook is like the AOL of this decade. As more and more people become more savvy about how to use the web without wasting their time, they’ll realize Facebook isn’t that great. That’s because it’s essentially the network television of the Internet. We all enjoyed NBC when Leno was all we knew, but once we realized there was more out there, we all bailed. The Internet is about discovering new things we didn’t know existed; Facebook is about retreading tired ground. It’s nice to catch up with people from high school that we’d forgotten about: that thrill lasts about five minutes. And then it’s gone.

2. Abusing Users’ Trust.
At the end of the day, Facebook is about centralization. It’s about centralization in a way that Google isn’t. For many people, Facebook is the Internet. Since Day One, Facebook’s founder Mark Zuckerberg has taken a metaphorical dump on the privacy of users, as well as their rights to their own data. During the fabled early beginnings of Facebook, the esteemed Mr. Zuckerberg referred to clients and users as “dumb fucks” for trusting him with their information online. He also hacked private servers at Harvard to get at data that others wouldn’t willingly give up. His company is now massive, but do you think his overall attitude has changed?

3. Hey, Remember MySpace?
Most people won’t remember this nugget of Internet history, but MySpace was originally about garage bands putting their music online so other Grammy hopefuls could listen to their jams. Unexpectedly, MySpace morphed into the ultimate platform for animated-GIF heaven. Perfect for narcissism in all its unholy forms, MySpace still failed to capitalize on its promise. Why MySpace failed to take the world by storm isn’t that big of a mystery. It’s because a bigger and better thing came along. That bigger and better thing came along in the guise of Facebook. The same thing can easily happen to Facebook. It’s already lost its edge, and is susceptible to subscriber loss due to its stance on user privacy.

4. Do You Trust Goldman Sachs? You’re Not Alone.
Revenue per user with Facebook is one-sixth of Google’s share, which is dwarfed by the revenue of Amazon. In other words, Facebook is not nearly as profitable as one might think. They’d need to grow at a rate that’s nearly inconceivable to justify their $50 Billion valuation as it stands. If Facebook were Apple at current valuations, they’d be worth a trillion dollars. Do you feel Apple, despite their enormous recent success, is worth a trillion dollars? If you said “No” to yourself in your head just a moment ago, you’re not alone. Most other people with half a brain would agree with you. That’s why the coming IPO of Facebook has a late-90′s tech-bubble feel to it. Because even projected earnings growth doesn’t justify Facebook’s supposed value.

As if you needed another reason to doubt the long-term prospects of Silicon Valley’s wonder child, the “good as gold” investment firm Goldman Sachs has decided to jump on the Facebook train. The term “Ponzi Scheme” was appropriate for Bernie Madoff, but it almost seems generous for Facebook, since we actually have some real numbers to go along with the rosy, mainstream assessment. During Facebook’s ascent, the upper management announced every new 10 million users as an affirmation of their glorious rise. Since crossing the 500 million user mark, Facebook has been oddly quiet about growth, users and their finances. Pretty odd for a company that wants to go public.

5. The Conversion Factor.
Since its inception, Facebook has based higher and higher valuations on the prospect of further and further growth. Only 1.5 to 2 billion people use the Internet everyday. That will inevitably grow with time, year after year. Facebook already counts a quarter of those users as members. But they’re all in the Western World. Facebook has hit the build out point, like a city that can’t annex any more adjacent property. They have to deal with internal growth now. That means monetizing users. Which means getting those users to click on advertisements. Sort of like Google, but within a world where said users didn’t think they had to click ads to subsidize their social habit.

Can Facebook make this happen, without alienating users? That is essentially the question, and it matters in a big way. Ultimately, users will migrate from Facebook if they realize the platform is essentially the network television of the late 20th century, albeit in an online form. Users ultimately want to interact with one another. But they want to do that without the constant badgering that large-scale advertisement necessitates. It’s simply not possible in a forum like Facebook. Eventually, users will gravitate way from Facebook, MySpace, Digg and other large and impersonal online arenas in favor of smaller, more loosely-knit communities.

The Final Word
From a financial standpoint, Facebook blew it. They should have devised a monetization scheme years ago, rather than relying on the endless growth-at-all-costs paradigm of Yahoo! over a decade ago. While they were bringing in outside investors and capitalization, they should have focused on actual profitability as soon as possible. In stark contrast to Facebook is Groupon, a startup that was profitable practically from Day One. They saw a need , filled it, and used only a handful of developers to accomplish that feat. Such will be the future of Internet Commerce. If you need half a decade to become profitable, you probably shouldn’t in the game to begin with.

Will Facebook be a relative Ghost Town in a year or two? Unlikely, considering the fact that MySpace is still alive and kicking despite the ups and downs it has gone through. But it will hardly be relevant in a few years time. The reason for this is that they rely fundamentally on the fickle nature of human likes and dislikes, and they’re too monolithic and growth-based to adapt to new trends. Here today, gone tomorrow. Risking stockholder money on the flavor of the month, especially when it’s already out of style, is no way to run a business.