Tuesday, December 8, 2009

350 Million users - Enough for facebook to make money?

Part 1
I attended last Friday an event in London from NMA (New Media Age) Magazine, "Marketing to young people through social media" http://www.nmalive.co.uk/, where among other interesting speakers was
David Parfect, agency sales group head from Facebook

See David's profile on Linkedin

First It was interesting to have a good glance at the latest metrics from facebook (mostly focus on the UK market) and find out facts such as:
  • there are 23 million active users in the UK (350 Million worldwide)
  • During the last year the average time spent on the site (25 minutes per day) has almost triple and now doubles the time people spend in MySpace (BTW lots of discussion around about if MySpace is dead or is not) or Bebo and finally
  • the largest segment is the 25-34 years old, with the 15-24 just 1% behind
  • and 83% of the 15-25 years old segment perfers to use facebook more than email to communicate
The rest of David presentation focus on the different tools out there in facebook (and they are in the process to rol out a number of new ones in the coming months) to allow companies and advertising agencies to develop interactive campaigns in order to become a real advertising preferred channel
Will that be enough to be profitable?

Part 2

Well let's listen first to the opinion of John Naughton, from the Observer, on an article that he published this past sunday which I found very relevant and containing some interesting and documented opinions on his side "Facebook now has 350m users - and there's no point in advertising to them"
Some excerpts from his article(

Read John's full article on The Observer
  • "...But even Zuckerberg must be wondering how he can monetise the little darlings (referring to their 350 million users)...It can't go on like this, can it? The software-engineering and server-farm infrastructure needed to support 350 million users burns money, and so does the bandwidth they use"
  • "...Facebook is the most glaring example of an unsolved puzzle: how to convert social networking into a sustainable business. Twitter, the micro-blogging service that is now in a runaway growth phase, poses the same puzzle....The truth is that investing in social networking represents the triumph of hope over experience"
  • "The conventional wisdom used to be that the key to online revenues was advertising.... Google is a special case because it specialises in search, the only area where online advertising really works....Everyone who uses the web has experience of the ineffectiveness of online advertising"
  • The inescapable conclusion is that anyone who thinks advertising is the key to sustainable online businesses in any field other than search should think again.
Clearly John does not think facebook is going to be making much money in the coming year

So where do you think lies the answer? David, John,...

Part 3

My opinion is that indeed just traditional online advertising is not how facebook is going to make money. However John fails to see that facebook is not really trying to focus on traditional online advertising but on interactive advertising
There are 2 areas where I think facebook can make money:
- Online: their rankings, third party develop applications and companies running interactive campaigns (rankings, competitions, multiplayer games,...) in facebook can really boost their revenue. This is today's facebook focus, however the big question is how well they are executing and how fast can they go, as there are other companies battling their space
- Mobile: with the arrival of smartphones a lot of interactions, engagement and conversations can happen on their mobile. However it is quite amazing I have failed to hear from facebook a clear strategy around mobile

So I believe facebook can make money, probably even lots of money.
However I remain skeptical on their execution capabilities and mobile strategy

More to come and will love to hear your opinion

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