This paper applies the Gartner Hype Cycle framework to Facebook, arguing that the platform sits firmly at the Peak of Inflated Expectations. Drawing on industry analysts such as Charlene Li and Josh Bernoff, the paper examines the factors driving Facebook's inflated valuation—including application development speculation, social commerce conferences, and a $50B investment banker valuation as of 2011. It contrasts this hype with the actual behavior of Facebook users, who favor social performance over purchasing activity. The paper further argues that Facebook's true business model—collecting and selling user data rather than enabling third-party commerce—will eventually push the platform into the Trough of Disillusionment before it moves toward the Slope of Enlightenment.
Social networks continue to gain the majority of web traffic, media attention, and fascination from both the public and industry, as both grapple with what these new platforms mean to them. According to leading industry analysts Josh Bernoff and Charlene Li, social networking is fundamentally about connecting with and listening to customers (Bernoff & Li, 2008). Since co-authoring Groundswell—which has become one of the most widely read books in this field globally—Charlene Li left Forrester Research, founded Altimeter Group, and has since dedicated her company to studying social e-commerce, or how to help companies sell online through Facebook, Twitter, and other social networks (Nuttall, 2009). Because analysts like Charlene Li have significant influence over how emerging technologies are perceived, their assessments have a meaningful impact on where a given technology falls on the Gartner Hype Cycle.
Of the hundreds of social networking sites in existence, Facebook dominates due to its rapid adoption rate, the ease with which users can connect with peers and friends, and its ubiquitous support across web browsers. Facebook is designed to allow streams of conversation to occur, giving each person connected—or "friended"—a channel to communicate. It is common for users to have hundreds of friends on the platform. What makes Facebook particularly unique is that each person can define their own online identity, from their profile picture to their interests and many other personal attributes (Bernoff & Li, 2008).
Facebook has also become a catalyst for people reconnecting despite decades of separation. It is, for example, especially popular with Baby Boomers who use the platform to reconnect with high school friends (Bernoff & Li, 2008).
From Stanford University professors to investment bankers, a wide range of actors are looking to make their fortune through Facebook—whether through application development, selling products or services, or consulting (O'Leary, 2011). Charlene Li's company Altimeter also hosted a conference dedicated entirely to social commerce, featuring Facebook as the primary platform for capturing leads, closing sales, and fulfilling orders. All of this hype pushes the peak of inflated expectations even higher. As a result, Facebook's valuation of $50 billion—established by investment bankers in 2011—continued to set records (O'Leary, 2011).
Despite the widespread enthusiasm about the money to be made on Facebook, the actual behavior of users on the site does not naturally lend itself to buying; it lends itself more to bragging (Boyt, 2011). People on Facebook tend to present a curated version of their lives—one in which they appear successful and carefree rather than dealing with challenges (Boyt, 2011). As a result, when someone does receive criticism, they are often openly challenged or ostracized—behavior that is clearly not conducive to rapid sales (Boyt, 2011).
Facebook functions, in many ways, as a virtual pecking order—not unlike a high school environment—where those who tell the best stories and cultivate the most popularity accumulate the most followers or "friends." Friend counts on Facebook are also easily inflated, which further accelerates the peak of inflated expectations. With a $50 billion valuation whetting the appetite of thousands of companies hoping to translate the site's popularity into revenue (O'Leary, 2011), the gap between expectation and commercial reality becomes increasingly pronounced.
"Facebook's data-selling model and inevitable disillusionment"
The bubble that is Facebook today will eventually turn out to be more of a forecast than actual revenue generated. A $50 billion valuation is sign enough that the platform sits at the peak of inflated expectations. Yet over time the realization will set in that this business model is more about collecting user data and selling it than about enabling sales of third-party products and services.
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