This is How Facebook Dies

In late 2016, Facebook’s shareholders were ecstatic. Stock value had reached a record high and everyone had forgotten the troubles of the days that followed the IPO.

What no one suspected was that a small group of software developers in Buenos Aires was about to launch an alpha version of Freebook, an open source social network. It was very similar to Facebook in aesthetics and functionality. The difference was that Freebook was built on a P2P network with the identity of each account validated on the blockchain.

Unlike Facebook, Freebook’s user data wasn’t stored in the servers of a company. It was distributed among all computers in the network. Freebook had no owner and no one had a monopoly on data.

Back in the beginning in 2004, Facebook was closed to Harvard students. Then it spread to other US universities before becoming freely available to the general public. Similarly, at the beginning, Freebook was closed to developers. They were all amazed about how fast it ran. But they thought that the user interface was too poor for non-technical users.

Freebook was free of advertising. Users saw only what they wanted to see. No unwanted ads popping on the wall. As a non-profit project developed by volunteers, monetization wasn’t an issue. Just as Wikipedia.

Speeding up

Just over a year after launch, Freebook’s interface had improved considerably. The platform had spread to new user communities. Investor Marc Andreessen had made a short reference to Freebook in a Techcrunch Disrupt event. This sparked the rumor in Silicon Valley.

Everybody was speaking of Freebook at the Valley… except for Zuckerberg, who declined to comment on the matter to the press.

Leaks of employees, however, suggested Facebook executives were hugely worried about Freebook’s explosive growth. It reminded them of the Instagram and Whatsapp episodes.

Zuckerberg had to pay 1 billion for Instagram in 2012, a company of just 14 employees. In 2014, he acquired Whatsapp for 16 billion. Both had achieved strong network effects and started to threaten the competitive advantages of Facebook.

But what was there to buy this time?

Freebook was open source. It belonged to the world. Facebook could not buy Freebook more than Britannica could have bought Wikipedia. It soon became clear that Facebook, which seemed an invincible monster, was actually a giant with feet of clay.

There was some attempt to go to court, claiming that Freebook didn’t properly store user data. But it was unclear what could be done. And how to enforce a court ruling? Against who? Facebook was like the record companies against P2P file sharing networks.

Autopsy

Two years after its founding, Freebook had already surpassed 100 million users and was growing at double digits. In a report to shareholders, Zuckerberg announced that for the first time, Facebook suffered a fall in the number of active users. Stock slumped 10% on the Nasdaq. In the following months, it was 40% down.

Users massively left the platform and moved to Freebook. Facebook was in freefall. Two years later, it was over. The company closed.

An analyst said:

“Why the surprise? Kodak, at some point, also seemed invincible. Schumpeter wrote that the process of industrial mutation revolutionizes the economic structure from within. The process of creative destruction is the essential fact about capitalism”.