I have been watching the very public floating of Facebook and it has me thinking. How do Facebook plan to really monetize their 900 million users?
To discuss this properly, lets have a good look at how the Google business model works. Like Facebook, In the companies early days, Google built a massive user base and heaps of traffic through their website, however they didn’t have a method of making money of all that traffic.
So what did Google do? They designed a system where they could integrate advertising into the search results. When you visit the Google search engine, you are in “search” mode, it doesn’t really matter what your looking for, whether you are buying a product or just searching for information, the point is your in search mode. This means your actively looking for a product or service. Google leverage this through their clever targeted and integrated ad’s to generate a relevant advertisement based on your search term. Some people are skeptical of the relevance of the ad’s show, however I often find the ad’s are more relevant than the natural results and so Google make money pretty much every time I’m searching for something.
Think about how many times per week you search for a product or information? I am probably personally responsible for $5-10 per week in advertising revenue for Google. I’m always searching for a restaurant, or particular type of food. My business always needs some form of office supplies or a supplier for a particular piece of software or hardware.
So now what about Facebook? What kind of mode are you in when you visit Facebook? Your looking to share something in your life, or check what your friends are up to. Facebook’s about connecting with people, your not looking for a product or a service. This is the fundamental flaw with the business model that is Facebook and is going to be their biggest challenge in proving they are really worth the 100 billion they are asking the share market to pay.
Now Facebook claim they have a number of methods of creating advertising dollars, but I don’t see any of them being fantastic or fully developed yet. I do like the concept that I can check-in with my friends when I’m at my local pizza store. This is free advertising for the Pizza store as I share my location and activity with my Wall and thus all my Facebook Friends.
Facebook also have the concept of a business having a “Business Page” that Facebook users can “Like”. It is obviously hugely popular, with many major brands gaining millions of “likes”. This gives the business the ability to share a story, promote a product or event directly to every single user through a post who has liked that business page. The problem with this again, is that its Free. Facebook don’t make any money from the Business Page, or from the posts the Business makes. So yet again we have a great feature, but no method for Facebook to monetize it.
Of course, lastly there are Facebook Ad’s. It does have a massive user-generated profile information so you can really target your advertising to a specific demographic. Age, sex, martial status, location, interests and employment status when combined give you extremely valuable data and allows you to be specific in who you advertise to. Facebook is also significantly cheaper than Google Adwords.
I feel there is a really good reason for this as I was discussing before. The people viewing your ad just aren’t “searching” for your product, so it really is a much less valuable lead. You have to create or generate interest – by giving something away for free, or at a large enough discount to generate the interest.
I can actually see that working for some products, such as major brands, but for example lets use my company, Simple Telecom. I sell 1300 numbers, how am I supposed to generate interest in 1300 numbers? It just doesn’t really work in the Facebook model. Where it does work is having people “Like” my business once they are signed up, so that they can keep upto date, and interact with the company for support and receive updates and news information. However, unluckily for Facebook – all those features I could do for free using all the free tools Facebook offers.
I don’t see the business model, or the 100 billion price tag.