In a typical Silicon Valley speed, Facebook coverage moved from being all glamorous to more realistic coverage that focuses on the challenges ahead. It looks as if the company has matured in a matter of weeks and now needs to deal with the real world problems and not only with the hype.Seth Godin compared Facebook with good old Hotmail. He foresees similar monetization challenges for Facebook, since they never developed a permission asset and a real relationship with their customers. (It is amazing to see that the question of how to monetize a free service is still open, more than 10 years after Hotmail was launched.)

Alas, I am not going to discuss monetization today. I think Facebook has another big challenge for long-term sustainability (and they have $15B to sustain…): it does not solve any real problem for its customer base.Hotmail was the first web based mail application that offered people with private mail, not monitored by their employers, and transferable when moving from jobs or Internet providers. Others enjoyed the anonymity of the service, and travelers liked the access from anywhere. Simply put, Hotmail founders, Jack Smith and Sabeer Bhatia, discovered a problem and knew how to solve it. This is how almost any successful product was born. It is true that they didn’t come with a clear monetization strategy for the service, but let’s give them a break: they were first in the free web based services industry.

Facebook, on the other hand, is not really solving any major problem: it is nice to have. It is a lot of fun, but you cannot define its service in terms of pain and a solution to it, which is the base for long-term success. I am not trying to argue with the social network cult—I have a Facebook profile, but if it’s taken away from me, nothing will happen. Fewer people will poke me or send cows at my direction (my dear friends, if you think of me, call me or send me an email. I really don’t know what to do with the pokes…). Take LinkedIn from me and I will be devastated. I really use it to solve the problem of managing current contacts and creating new ones with people I want to meet.

Some lucky people are successful with products that are just fun and sexy and don’t necessarily solve any major customer problem. These people are called Steve Jobs and they make iPhones. Unfortunately, the rest of us need to think hard about which market segment we are targeting and what is the pain this target is facing. If you can figure out a real pain, you are half-way to a winning product.

Update 11/8/07: Was flipping through Forbes and found this great quote from Daniel Lyons:Facebook is a corporate version of Paris Hilton- a company that’s famous for being famous…”

Part 2:  Facebook, Market Segmentation And a Discussion Mark Zuckerberg Never Had

The answer: The problem that Facebook does solve

Gadi Shamia

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