Daily Ticker

Is Facebook Losing Its cool?

Daily Ticker

By Michael Santoli

The company that became a cultural phenomenon by harnessing young people’s zeal for engaging through technology and projecting an online persona has, by several accounts, become passé among many teenagers.

As Apple Inc. (AAPL) has learned, having a ubiquitous, fabulously successful technology product can produce its own backlash as younger, hipper users bristle at their parents’ presence on the same platform.

Facebook (FB) itself disclosed in its annual 10-K filing with the Securities and Exchange Commission that its users – which number more than 1 billion globally – are spending more time on competing services. These include Instagram (which Facebook bought in April of last year), Tumblr and Snapchat, among a raft of upstarts and niche networks.

As Breakout’s Matt Nesto points out, younger people are also spending more of their screen time outside Facebook in part to avoid their parents’ snooping on their online activity. The whole phenomenon has quickly become something of a pop-culture gag, prompting cartoons playing to the theme much as Samsung’s TV ads poked fun at the Apple iPhone’s appeal among the Mom-and-Dad set.

The apparent loss of hipness and youth appeal presents a vexing strategic issue for Facebook, which as a company worth $66 billion in the stock market must please Wall Street with monthly user-intensity metrics and strong ad-revenue growth. It’s not easy to pair the “monetization” of user activity through ads with the re-establishment of a coolness factor among younger users.

Meantime, Facebook continues to combat the perception that it manipulates the user experience to privilege paid content in users’ News Feed. A New York Times article this week explored such charges, which Facebook resolutely contested. Still, the perception that Facebook constantly tweaks privacy settings, and the algorithms that determine what content users see, remains strong. The company on Thursday will be rolling out fresh News Feed features, perhaps to make paid content more distinctive and palatable.

Whether Facebook founder and CEO Mark Zuckerberg can balance the objectives of user engagement and steady ad-revenue gains remains one of the uncertainties hovering above the company’s share price, which has recovered nicely from an autumn low near $19 to a recent $28, but remains below the recent high of $32 set just as it made its overhyped Graph Search announcement in January.

Nesto points out that Facebook’s role as a key online resource is solid, but the risk has grown that users view it as a prosaic resource such as “the yellow pages.” That is, a useful, authoritative way to access needed contacts, but one that doesn’t excite users.

Of course, one might argue that Google Inc. (GOOG), Wall Street’s tech darling of the moment, is likewise just a newfangled yellow pages – but with its tweaking of algorithms done out of view, behind the front page.

Facebook suffers from, if anything, the admirable problem that its users once loved its experience so much and spent so much time on there that it became, for some, too popular and crowded. It remains to be seen whether the company can regain its cool without waiting around, perhaps, to become “retro-chic” down the road. In the meantime, Facebook can busy itself trying to create a better, more profitable site, even if its ability to generate much edgy buzz is behind it.

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