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Wednesday, 09 March 2011 16:56

Facebook threatens many online businesses

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Many established brands have been quietly building up direct links to end user customers through their Facebook pages. They are now being tempted to exploit these at the expense of established intermediaries.

Last December Macquarie Telecom released a report looking at the attitudes of small business to the NBN. It included a number of case studies, one being from Quickflix, an ASX listed company that delivers rental DVDs in the mail.

Quickflix's aspirations, however, are to move to online delivery and it was quoted in the Macquarie Telecom report as eagerly awaiting the bandwidth boost the NBN will provide. "Quickflix estimates a 'massive' upside to its subscriber base under the NBN, potentially increasing from around 100,000 to 1,000,000."

My comment at the time was somewhat sceptical. "The NBN however will provide easy access to the market for many more providers of video content eager to capture Australians' eyeballs."

Recent developments in the US have demonstrated the truth of that comment. Warner Brothers has just announced that it will offer movies for download via its Facebook page. Shares in Netflix, a company that offers both mail and online delivery of movies for rent immediately fell. Netflix had been a darling of NASDAQ: its shares tripled in value in 2010 and have risen 11 percent this year according to Bloomberg.

What this demonstrates once again is the phenomenon that has been talked about since the dawn of the Internet: disintermediation. Most of Quickflix's investment since its inception has gone into acquiring customers and building its reputation as a 'portal for video content' in the expectation that the value of that portal will increase enormously come the NBN.

Meanwhile the owners of the content that is its life blood have been quietly building their own direct links with their end customers, probably at minimal expense, through social networking, particularly Facebook. Once those links have been established it is a very small step to start exploiting them.

Organisations like Quickflix may still be able to thrive by being a one-stop-shop for content and services from multiple providers but many organisation like Warner, having built up good social networks with their end customers, will be tempted to disintermediate the likes of Quickflix.

As Time Warner CEO, Jeffrey Bewkes told Bloomberg: Netflix's subscription for DVDs and unlimited streaming starting at $US7.99 a month and in his view reduces the value of premium programming. He is considering making Netflix wait longer and pay more for TV shows and movies.

It is early days to try and forecast how this will all pan out, but by the time it does there will doubtless be lot of corporate blood on the floor. Quickflix, meanwhile, has just sold 12.5 percent of its equity to a US investment fund for $A2.3m, funds it will use to fund "continued subscriber growth and other new initiatives." Good luck to it.

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