Will Facebook Ever Make Money?

Here are some disturbing figures for Facebook (based on Facebook stats & a BusinessWeek story):

Some revenue models are better than others.

Some revenue models are better than others.

  • 200 million users
  • $280 million in revenue (in 2008)

That works out to $1.40 a year for each user (or about 12 cents per month).

Those are hideous numbers. In all likelihood the neighborhood lemonade stand run by an 11-year-old girl monetizes her customers better. TechCrunch reports that Facebook projects an increase in revenues to $400 million in 2009. Better numbers – but not nearly enough to make the company profitable. In fact, both BusinessWeek and TechCrunch report that Facebook is looking to raise more capital – as it is likely they are burning through more money per month than they collect in revenue (TechCrunch reports a monthly deficit of $20 million).

Here’s the problem for Facebook – it’s primary source of income is selling advertising to the masses. Advertising on Facebook is the same as advertising on television. This is fundamentally at odds with the entire concept behind social media platforms: micro-targeting.

Micro-targeting is the ability for social networks to slice and dice audiences so they can self-selected and opt in only to messages they want to hear. Twitter is a perfect example of this. Followers of corporate Twitter participants (like Starbucks and TripAdvisor ) are being followed by people who want to hear what these companies have to say. They have voluntarily signed up for the travel tips and hotel deals offered by TripAdvisor (full disclosure: I consulted with TripAdvisor on its social media strategy).

This is one of the reasons why Twitter is such a powerful engagement tool for companies: this ability to tap into their passionate customer base.

Facebook provides the same kind of micro-targeting with its groups and Pages devoted to companies. The New York Times, for example, has more than 360,000 fans on Facebook. These are people who have voluntarily opted to follow the Times because they are interested in receiving product updates (in this case national and international news).

The challenge for social networks has always been about monetizing what it already offers for free. And Facebook is the epitome of this challenge. Here is the problem in a nutshell: Facebook has been unable unable to create a paid model that provides a better system of micro-targeting than the one it provides for free. And until it does so, Facebook will continue to lose money.

Granted, BusinessWeek famously wondered in 2000 if Google would ever make money. Facebook – despite its unprecedented growth – is still in the nascent stages of its development. It would be silly at this point to think Facebook won’t ever get to profitability. A monetization strategy may be out there and ready to explode. It’s too early yet to panic.

But the economic freefall of the world economy and its own explosive growth (adding users costs money) have put Facebook into a perplexing bind. How long can it go without an infusion of cash? Will it be able to continue growing without a real revenue plan? Will the markets open up to allow the company to IPO in time? (The Wall Street Journal yesterday reported that Facebook’s CFO is leaving the company). Or will it fall prey to an acquisition by Microsoft or Google (or someone else)?

These questions are even more urgent with news yesterday that Facebook’s CFO is leaving (as reported in the Wall Street Journal).

But one thing is for sure: Facebook needs to monetize itself better than a kid’s lemonade stand. And soon.

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