Another friend of mine posted more incisive questions to my ramblings on Google's precarious Social Network situation. He asked:
"Search Ads make so much money because the focus on "intent". FB/display ads work on 'brand awareness" and "generating intent". Yes, they are important, but monetizing them is hard. If you try too hard(like in Myspace) you end up pissing your users who leave your site.
What happens when this demographic grows up, or when everyone's FB circle becomes sooo huge that it becomes less useful, or if something better comes along? i.e how sustainable is FB?
Let me start off my trying to explain how Google makes money. Google's revenue model is very straightforward. It makes money through:
1. Advertising
2. Search results
3. Sponsored links
4. AdWords/AdSense
I agree that search ads work beautifully because of 'intent'. This means that more people search, more pennies fall into Google's coffers. On FB, people don't 'search'. Yes they do search for friends and groups etc but they don't search the web, they search within FB. So FB cannot monetize 'intent' as neatly as Google can. Regardless, advertising on FB has been growing like a virus in a petri dish. Lets dig deeper and check FB's revenue model in more detail. Those ads that you see on the right side (to the user) of your FB account brought in about $250 million to $300 million Users dont have to do anything on this (well they can click the Like tab and spread the message). These ads can also be custom targeted. For instance, if I am a fan of Beatles on FB, one of these ads could be Beatles' album or a guitar instruction DVD. I think that this revenue model is here to stay. Next, engagement ads, which need user-interaction and sometimes user endorsements brought in another $100 million or so to FB in 2009. These ads need the users to interact with the ad, they could be games that need to be clicked or puzzles or even quizzes (Haven't we all FB boys taken one of those silly "What animal are you" type quizzes at some point or other?). Next, Gifts and virtual goods brought in another $50 or million or so. These could be those ubiquitous and constant birthday reminders and gift suggestions that FB throws at us (quite surreptitiously). Finally, Microsoft which has an agreement in place with FB and sells around $50 million or so worth of banner ads on FB. Please remember that all these ar 2009 numbers.
So if you look really close, you have see that one through three from Google's revenue model above are applicable to FB in one way or another. FB is also smart enough (until now) to not piss us users off like MySpace (what a horrible site that has become) did. Sponsored links will appear as FB as the number of fan clubs and corporate profile pages grow. I think these corporate sites will bring in more revenues in the future. If for instance, Toyota wants to spread a product safety message or market a new technology, FB community would be a great place for such propaganda. A closed private network within the vast Internet. Revenues will keep flowing from that side. What is left is the mega-selling AdWords/AdSense type programs. Here intent plays a huge role, no doubt but I think its probably a matter of time before FB comes up with its own version of FaceWords and FaceSense programs.
Only a certain section of FB users are active on the site. Even if you take that as 40%, it translates to 200 million active users. The site is only a few years old and from what it was it has dramatically changed. As the users grow up, FB will morph itself into something more suitable to that particular demographic depending on the private network within. Basic services such as email, photos/videos uploading will only increase as the Net usage and speed increase. The users will start uploading more and more data to FB and keep throwing it around opening paths to better image searching (on which Google is working hard, even taking cues from rival Bing). So as the demographic matures so will that section of FB along with it, reinventing itself. The bigger the circle of influence gets, the better it is for FB from the perspective of advertisements. True, there could be a lot of chaff in an individual circle but that is users problem not FB's. Whom you add and what you share on your profile is entirely up to you. Such privacy issues will always remain (Whether its email or FB). The onus is on the user to be diligent about what she puts on the network. The safe bet being the assumption that someone somewhere has a copy of that image/document/whatever you put on the Internet. FB is not an exception to this.
Finally, I believe that FB has gained so much traction that something else coming up is really tough. There are so many social networking sites, its daunting to even keep a track (for an exhaustive list and the number of users on each network, check http://en.wikipedia.org/wiki/List_of_social_networking_websites). But FB is easily the most generic and famous among all these. Mail apps like Hotmail has about 350 million users (Yahoo around 170 million or so and Gmail 140 million or so) but FB has 500 million and growing. How will it sustain this growth or where the next 500 million will come from is tough to answer. It could acquire other budding social networks in Europe, increase presence in Asia/Latin America where it is weaker. It might also move into a different direction in terms of services/apps offered. I guess the possibilities are endless when you have 500 million registered accounts on a single network.
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