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The Facebook Bubble
January 4, 2011 - 8:45pm

"Facebook has raised $500 million from Goldman Sachs and a Russian investor in a transaction that values the company at $50 billion, according to people involved in the transaction."

from 1/3/11 NYT's

A $50 billion valuation for Facebook equals a single company bubble.

Facebook matters to higher ed for a few reasons.

The 2010 ECAR Study of Undergraduate Students and Information Technology reports that 97% of students use Facebook for social reasons, and 29% use Facebook for course associated work.

How often have you heard students or professors ask for the LMS to behave more like Facebook? Learning is social, and Facebook has raised the bar on what we think a learning management platform should accomplish.

So if Facebook is so ubiquitous and influential, why shouldn't it be valued at $50 billion?

3 Reasons:

Reverse Network Effects: The value of Facebook to users relies on network effects. Facebook is only valuable if your friends are members, and post on the site. Facebook apps depend on a rich and active user base. Network effects, however, work both ways. The utility of Facebook erodes quickly when users bring their networks somewhere else. A perfect example is the Visual Bookshelf Facebook App. It started out as a promising network for book lovers, but as users have migrated to other book sites the utility of the app has dramatically declined. Who wants to be in a virtual book club when people seldom post reviews or reading lists? It doesn't take too many heavy users to leave Facebook for more specialized sites for the value of the network to decrease, as Facebook (like all social media sites) depends on a few heavy contributors to drive the more passive traffic.

Highly Replicable: Facebook has done well because other sites have done so poorly in providing a social experience. But what happens when these latecomers get their acts together? When Blackboard and the other LMS's adopt robust and organic social tools? When Google figures out how to make gMail and Google Docs more social? When whatever the next entertainment and education platform to emerge on web and mobile platforms comes with baked in social features? We will want to connect around specific content with specific communities. I want to connect on with other passionate audiobook readers, and the terrible nature of the sites social tools drives me crazy. But Audible and other sites social and sharing tools will only improve, leaving a general and undifferentiated site like Facebook vulnerable.

Little Value Add: Facebook aggregates a community, but doesn't do all that much with the people once they are together. At one point I wondered, what would would happen if Facebook got serious about education? What sort of LMS could be developed on top of Facebook's community? What sort of immersive open learning content could be connected with the Facebook community? By now, I've about given up. Despite being born in a dorm room, and nourished by the college student community, I can't find much evidence that Facebook has much understanding or interest in education. I'm not saying that Facebook will eventually seem like a bubble for its failures in education. What I am saying is Facebook's failures in education is indicative of the sites failures to engage and provide a value add for many different communities.

Educational technology companies are the smartest investment of 2011.


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