Back in the early 90′s we saw phenomenal growth in the providers of telecom networks and services as they were freed from their institutional shackles by deregulation – both handset and network providers grew and conquered their markets, but eventually they became so large and centralised that they were no longer able to innovate and meet customer needs.

With dominant power and monopoly positions came increasing anti-trust pressure and a lowering of entry barriers, which then encouraged new players with propositions which added more value to customers and thus eroded the relationship between the dominant giants and their customers. These dominant companies then faced two choices: protect and conserve their competitive advantage as backbones of the industry, or restructure (i.e. break up the company) into cells which can focus on customer needs and reinvent their competitiveness to fend off the new entrants.

I have yet to work with any CEO who is prepared to restructure (and therefore risk a market dominance) before they’ve milked every last drop out of their cash cow, so inevitably they get outpaced by new players and are forced to retrench into their core competences.

So what does this mean for Facebook? Well, as with any strategy Facebook must focus their attention on the threats and opportunities which affect their shareholders in the ‘near’ term. So that means the battle for platform/portal/customer dominance with Microsoft, Google, Apple etc. It’s also worth bearing in mind that Facebook are dominant in the US, but not in China, Russia or India where players such as Renren, or VKontakte are growing fast. India has a great passion for social networking, but not in the way Facebook currently serves, it’s not uncommon to see ‘millions’ of people following the podcasts of Bollywood stars and celebrities each day, so there’s a lot more to social networking when you look at it through a cultural lens. Facebook is very much an American business which is a greater restriction (due to its social purpose) than you would find with product exports such as McDonalds or CocaCola.

Part of the reason why Facebook needs to quickly pursue an IPO is to gather a war-chest to then go and acquire social networks in these emerging markets – with more than 700 million registered members Facebook will never be the ‘best’ service for individual (vertical or activity-based) customer propositions, so the battle must now be to own the social framework (the alpha-male of social networks). Just as with telephone networks, that’s a strategy that requires scale and connectivity to win, but it also leads such a business to ‘support’ new players and become more of a service provider than a destination.

What the above graph shows is the transition of Facebook from a destination to a channel and provider, but it certainly doesn’t show that the game is over for everyone else. Far from it. All industries go in cycles, and as dominant players gain power, they also lose agility and responsiveness. The pattern of events in the internet/media sector is no different to any other – in my experience there are no ‘new’ patterns, only those we have yet to match against our template of knowledge.

Facebook is beginning to fit very nicely in one that we’re already quite familiar with…