Ronnie05's Blog

Facebook: Building a unique business model around socialization

Posted in Internet and Search, Social context, media and advertising by Manas Ganguly on October 8, 2010

The second of a four part series on the evolution of Social platforms as the future of Internet. Led by Facebook, Social Internet is already edging out Search/Information era (the Google Internet). Read Part 1 here

Facebook’s alleged revenue has grown from $275 million in 2008 to $635 million in 2009 to a rumored $2 billion this year.Google’s revenues topped $86 million in 2001, $440 million in 2002, and $1.4 billion in 2003, which is a very similar pattern to Facebook (of today).In 2010, Google’s annual revenues are expected to be $28 billion and Facebook is expected to be $2 billion. Facebook is expected to clock 72% CAGR over the next 5 years and is expected to hit $30 billion. Facebook will make this $30 billion through a diverse set of revenue streams that have people at the centre of the business and the proposition. Therefore Socialization is not just a revenue layer, it is the core, the essence of Facebook. For many consumers, Facebook is the Web.

Not only is Facebook serving up advertisements to its consumers and making dollars out of it, it is also engineering an open web eco-system with companies such as Microsoft, Zynga, Amazon and others. The virtual online currency, Facebook Credits is destined to become a tool of web commerce in days to come unless Apple and Google stage an upheaval. Facebook is thus creating a future stream of revenues and profits by creating a virtuous cycle of cross-promotion: targeted lead-generations and subsequent transactions feed into the next series of even-better-targeted lead-generations and subsequent transactions. The main challenge marketers have with the Internet till recently has been that there aren’t too many places where they can reach almost everybody with one single ad spend. Facebook fixes that problem. Facebook is more targeted, has better analytics, and engages its audience directly and interactively through social conversations— status updates, chats, photos and videos.

Facebook Advertising does not directly compete with the text advertisements of Google’s AdWords and AdSense. Instead Facebook is feeding from the TV ad spend dollars. Television advertising represented $60 billion in 2009, or roughly one out of every two dollars spent on advertising in the U.S. Five years from now, billions of dollars of advertising will be spent to direct consumers from one part of Facebook . . . to another part of Facebook, where they’ll be offered real items to buy for ourselves or others, premium services to subscribe to, virtual goods to procure and play with, and deals-of-the-moment available for immediate purchase (or miss out forever!).

Davide Grasso, Nike’s chief marketing officer, says Facebook “is the equivalent for us to what TV was for marketers back in the 1960s. It’s an integral part of what we do now.”

Facebook Ads employ demographic characteristics (Age, Sex, Locations and Interests), which corporate brand managers and television ad buyers have been accustomed to purchasing for half a century. By contrast, Google AdWords target on the intent revealed by search queries, is a new practice that has been less understood (SEO/SMM) amongst marketers though it has been rocking the ad revenues for 10 years now. Facebook has two more aces up its sleeve: Facebook Credits which is on its way to become the first global online virtual currency and algorithim search which would be Facebook’s answer to Google’s Adword and Adsense

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  1. […] reality, it’s Google’s recognition that Facebook has the same kind of advantage over Google that Google is used to having over its competitors. Thus Google it appears is scared of Facebook […]

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