Let's start with this - what makes Facebook special? Is it a truly innovative technology? Actually, the only thing Facebook has had to invent is a way to scale up to a system of this magnitude and keep it available to pretty much everyone. Otherwise, the tools, technologies and protocols they are using are solidly in the mainstream. For that matter, the things this system allows people to do - chat, email, share pictures, videos and web pages, publish information about themselves and find like-minded people - all that has been done before, in many cases in a better, more usable fashion. Again, just not at this scale. Is it revenues? Not even close. Facebook's revenues have mostly seemed like an afterthought, and any way you measure them - per user, a percentage of cost - they have been, and continue to be small beans. And that brings us to the more salient point.
Facebook is special not for what it does, but for what it has. It has been the first site without an underlying purpose (search, commerce, etc.) to develop such an enormous active user base. It will be the first site with a billion users. As a social media site, that's an incredible level of sustained success. But as one of the most valuable brands in America, if not the world, they have yet to succeed at all. In fact, you could say that on the basis of their costs and their revenues to date, they have been a massive failure, a giant hole into which investors have thrown millions of dollars. In order to justify such a ridiculous market capitalization, they will have to figure out how, not to just monetize that user base, but to scale that monetization to the level they scaled the site during its growth years.
How might they do that? Well, they can't do it directly. Remember when we said they didn't have any real new technology of their own? That means that those users can jump ship any time they see a better option. There is no technological impediment to building Facebook 2.0. Now, Google+ has struggled, it's true, but primarily because of the chicken-egg dilemma. People don't want to use a social media site unless all their friends, and all their potential friends, and enough other people to provide a content rich ecosystem are on there too. And they had no compelling reason to leave Facebook. If given one, there's not much real stickiness keeping them there, provided the people and the content move with them. And remember, the whole world is moving to the Web. Facebook might be the first site to a billion users - somebody had to be first - but it's simply apparent that they won't be the last.
I suppose I could be wrong, but I sure don't think advertising is the answer. There is just a radical difference between search advertising, where a significant portion of the users are actively looking for some product or service, and placing "targeted" ads where people hang out with their friends, in hopes that they not only notice them, but act on them. The returns would appear to be somewhat limited.
In short, Facebook's path to monetization would seem to be limited to advertising revenue and those profits to be gained by selling user information. The one seems grossly inadequate to support the entire edifice, and the other is fraught with danger. The users, in both their volume and their activity, provide all the value Facebook has. Anything that might cause the users to move in significant numbers to a different but equivalent (perhaps even superior) platform would be their death knell.
It's true that having access to a billion people, about whom a wide array of specific things are known, is an unprecedented opportunity. But when it comes to the valuation of the Facebook brand, and it's concomitant value to its shareholders, the key question is whether there is a way to convert that access into profits without destroying the brand in the process. My guess is that in five years we'll see a much smaller Facebook with a much smaller market capitalization, competing among a number of top level competitors for those users, still struggling for profitability.
In short, Facebook's path to monetization would seem to be limited to advertising revenue and those profits to be gained by selling user information. The one seems grossly inadequate to support the entire edifice, and the other is fraught with danger. The users, in both their volume and their activity, provide all the value Facebook has. Anything that might cause the users to move in significant numbers to a different but equivalent (perhaps even superior) platform would be their death knell.
It's true that having access to a billion people, about whom a wide array of specific things are known, is an unprecedented opportunity. But when it comes to the valuation of the Facebook brand, and it's concomitant value to its shareholders, the key question is whether there is a way to convert that access into profits without destroying the brand in the process. My guess is that in five years we'll see a much smaller Facebook with a much smaller market capitalization, competing among a number of top level competitors for those users, still struggling for profitability.
...and those profits to be gained by selling user information.
ReplyDeleteThis is my ostensible reason for avoiding Effbook.
(Of course, I've never owned a cell phone, and I'm proud of the onion I wear on my belt.)
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And my failure to close tags.
ReplyDelete(w.v.: glych)
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It is indeed a very nice onion.
ReplyDeleteAnd I don't think it is your tags responsible for the glych. Blogger seems to have decided that comments should be italicized in their entirety, perhaps to punish me for my hiatus...
thunder is right. FaceHell will eventually be forced to create all kinds of pay-for-play features, rolling them out for free until people get to use them widely and then charge subscriptions. In fact, I am a little surprised they haven't started subscription-basing the thing yet.
ReplyDeleteAnd then, the only thing they will have left to commodotize will be your information.
Fortunately, I have absolutely nothing of value, so Fuck You, Facebook! Knock yourself out!
I disagree. If there is anything at all obvious about the Facebook business model, it's that nobody will pay them - and they know it. If they tried to raise revenues directly it would put them out of business. It simply cannot be part of the business model. There is no reason to be surprised that they have not tried to raise revenues by subscription. They know every bit as well as we do that the only thing they have of value is their user base - they cannot do ANYTHING that will cause a reduction in user numbers, or even in rate of growth...
ReplyDeleteDang italix!
DeleteThe effBook valuation reminds me of the bubble.
Of course, there were tons of companies floating around back then...valued on numbers of page views.
P.S. I guess you're right, mikey. Blooger gives you an error message if you don't close the tags, and I didn't get one with my first comment.
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