Facebook – Yard Sale
Something new needed to make this work.
Facebook has decided to have another go at classifieds but the fact that it is doing nothing new means that it is very unlikely to disrupt the current status quo in classifieds.
• Facebook has decided to have another go at classifieds but the fact that it is doing nothing new means that it is very unlikely to disrupt the current status quo in classifieds.
• Facebook has re-launched a feature called Marketplace that operates almost exactly like Craigslist and so on.
• This is the second time that Facebook has tried this and its previous attempt saw very little traction and was quietly offloaded to a third party in 2009.
• Facebook has been experimenting with this for the last year or so and appears to have run some pilots in Australia in order to see if it might work second time around.
• The rationale is obvious.
• Facebook has 1.7bn active users and a very large number of them use other sites to buy and sell second hand goods.
• If Facebook can encourage users to do more than just social networking on its site, then it could disrupt the well established markets.
• This is a big if.
• Classifieds is the classic network based business where the winner takes all and everyone else flounders.
• Furthermore, once a site has been established as the go to place for goods or services, it is incredibly difficult to dislodge which is where we think Facebook will run into difficulties.
• Craigslist is a great example of this as it offers a horrible user experience and has no effort whatsoever to address usage of the Internet on mobile.
• Despite this, it is still the number 1 classifieds site in USA and all efforts to dislodge it by huge brands with vast resources have failed miserably.
• The problem that Facebook has is that it is the place to go and hang out with people that you know whereas almost all classified transactions are enacted between complete strangers.
• Furthermore, we think that it has been experimenting in a market (Australia) that is very fragmented and where there is no clear leader.
• This could easily lead Facebook to think that the outlook for it to succeed in other markets which have a dominant player is much better than it really is.
• Facebook is not intending to earn a direct return from this, but should it take-off, the data that the service generated will be invaluable.
• User searches will be highly relevant to their interests and this will allow Facebook to improve the quality of its targeting and hence the price it can charge for its inventory.
• However, all of this will come to nothing unless Facebook can meaningfully change user habits.
• We suspect that this endeavour will fail just as all of its predecessors have as Facebook is not doing anything radically different to anyone else who has made this attempt.
• Fortunately, the investment to launch this service is not very high as Facebook already has all the users it needs on its platform.
• Hence, Facebook has very little to lose by trying this strategy but given the lack of anything new to excite users, we suspect that this will also fail to dislodge the leading classified offerings.
• Facebook has all of the makings of the biggest ecosystem of them all but there is still has a lot of work to do before it can assume that mantle.
• This is why we still think that short term estimates remain too high for Facebook leading me to look for a correction in the share price (see here) before getting in for the long-term.
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