The Republic of Facebook
With 854 million members, the social network should stop thinking of itself a business and more like a country
Blogs | 03 Feb 2012 :
"We don't build services to make money; we make money to build better services."
The above statement wouldn't be out of place if it came from a public works minister or the head of a non-governmental organisation working on infrastructure projects in the developing world. It's almost a charitable sentiment, which makes its source all the more baffling: the initial public offering (IPO) filing made by Facebook co-founder and CEO Mark Zuckerberg. Facebook's $5 billion floatation values the company at around $75 billion, making it the biggest IPO in Silicon Valley history, dwarfing Google's $1.67 billion in 2004 and laying waste to business social network LinkedIn's $352.8 million in 2011. Not bad for a company that claims to be more interested in being cool than profitable and freely admits it moves at a pace guaranteed to annoy users and advertisers from time to time.
We now know Facebook turns a modest profit through display advertising, transaction charges and a five-year deal with casual games developer Zynga. There are also experiments like Miramax's movie rental application that could add an additional revenue stream. It's a simple commercial model begging to be expanded upon. Right now the social network boasts 854 million registered users (483 million could be considered 'active'), employs 3,200 (including 200 in Dublin), and operates in 20 countries in 70 languages. Up to 80% of Turkish people, Venezuelans and Chileans have accounts as do 60% of people in the US and UK. The population figures are staggering, yet the network's commercial proposition is complicated by the same problem it's had since its beginnings in a Harvard dorm room seven years ago: it's not a product.
Facebook's commodity is its community and its business model relies on selling targeting advertising based on the personal data users submit. This makes for a good proposition to advertisers but it puts the onus on the service maintain the users base, to stay 'cool' and avoid users migrating to competitors like Google+. Its job is to keep the 'population' happy and that means re-evaluating the nature of what a social network is. It could be argued that Facebook, as a forum for conversation, political discourse and trade with its own currency, is more akin to a country than a company. This makes Zuckerberg's statement about building better services all the more pertinent, and perhaps holds the key to how the company might secure a more stable and sophisticated revenue model.
So how might Facebook better itself, or at least feel more like a business? For one it might develop a real interest in video content delivery. You can already use a Facebook account to sign up for Netflix, so why not have a Netflix app inside the network, meaning users will spend more time within the website and contribute to a conversation associated with what they're watching to an audience beyond their friends.
Another obvious development would be tiered membership, where premium services offered by Amazon offer storage of documents, music and movies that can be accessed from multiple devices for a small fee. Maybe capping the amount of content a user can post would have a certain appeal, with higher limits available o a paid-for basis. A special package for businesses incentivising them to move away from setting up free product pages for a more substantial presence would bring a lot of profitable entities into the revenue net - think of it as a kind of trading licence.
Facebook's free mobile app is another untapped opportunity. Without charging for the app itself, companies could pay for icon space on the main menu. For example, if you are a regular Farmville player you should have a Farmville icon as part of your own customisable app. Having admitted it hasn't been able to monetise mobile devices, charging companies a small fee to feature in the app would be an interesting move.
Finally, again speaking to the idea of growing the population, why not appoint 'ambassadors' to handle the localisation process in new markets. This would apply largely to China, where networks Tencent, Sina and Renren are the only options owing to government restrictions. Expanding into Asia will require no small amount of compromise but an ongoing 'diplomatic presence' playing by an entirely different set of rules and cultural norms compared to markets in the West. This will not go down with users who championed the use of social networks during the Arab Spring, but a one-size fits all structure will not serve Facebook if it gets serious about the Far East.
Facebook is an inherently democratic and fickle ecosystem. It finds strength in volatility and relies on destructive as much as positive feedback and that will make it a riskier investment prospect than Google or Microsoft. The market will bite and share prices will perform well when they begin trading around May. Just don't expect everyone who buys in to know what they're buying.