Saturday, August 29, 2009


It's insidious. It's addictive. It's the productivity-sapping bane of offices worldwide.

On October 24, 2007, Microsoft announced that it had purchased a 1.6% share of Facebook for US$240 million, giving Facebook a total implied value of around US$15 billion. Knowing Bill Gates, Facebook must be rolling in dough, right?

Apparently not, it seems.

A. How does Facebook make money?

How many people are on Facebook? No one knows exactly, but latest estimates range from 175 million to 250 million users.

A cursory internet search showed the following: According to founder Mark Zuckerberg, revenues of US$300 - 350 million are projected for 2009 [Feb. '09].

FB is supposed to be breaking even, but they plan to spend US$200 million on servers next year, which might land them in the RED.

Sources of revenues are essentially the ff:

i. Advertising (brand ads, deal with Microsoft)

Apparently, companies pay Facebook a hefty sum of money to place their ads on the right-hand side of the screen. These ads are supposedly customized based on your stated interests in your profile, so that there is a higher likelihood they would be of interest to you.

But really, when was the last time you actually clicked on a banner ad? Enough said.

ii. Virtual goods

Facebook launched Gifts on February 8, 2007, which allowed users to send virtual gifts to their friends that appear on the recipient's profile. Gifts cost US$1.00 each to purchase, and a personalized message can be attached to each gift.

But can this be a major revenue driver in the coming years? I would think that people are more interested in answering quizzes, and tagging friends on countless party photos, and coming up with feeling-profound status updates (ex., "Chubbs thinks happiness is optional. Que sera sera."), than in giving each other virtual gifts.

Facebook's database on its users is a veritable goldmine, and there have been plans to sell the information to other companies, but these have been hindered by protests from users about invasion of privacy.

B. Alternative revenue-generating scheme for Facebook

Well, here's my suggestion: Stop making Facebook a free site, and START CHARGING USERS.

Of course, the idea of pay-as-you-go subscriptions for internet content is not entirely new. Stanley Bing, columnist of Fortune magazine, is skeptical of this approach. In his August 17th column, he barked, "How about Facebook? Would millions of lonely, homebound losers be encapsulating their lives in all their digital splendor if they had to whip out a credit card to do so?"

Hey, don't discount it entirely, Bing-O! I believe it's worth a shot.

Let us discuss the arguments then:

No. 1 : "If Facebook is g
oing to start charging me for using its site, i'll just delete my account." (or not bother to log in anymore)

This is obviously a valid concern. How many people would be so disgusted / dejected / disappointed / that they would actually stop using Facebook?

Not everyone, I think.

In fact, I would bet that "heavy" Facebook u
sers (i.e. people who log on everyday, post their pics - even those back in grade school, etc.) would be "sticky", and remain loyal to the site.

Let's do the math. For example, if 75 million users drop out and you collect US$5.00/year from the remaining 125 million or so users, that's easily US$625 million in revenue.

The key here is to make the payments as unobtrusive as possible, and reasonable enough so as not to make a significant dent on the individual user's wallet.

How can it possibly be done?

a) "Micropayments" on selected actions

Off the top of my mind (this is not an exhaustive list) :

Logging in to view friends' pics and profiles - FREE
Updating your status / profile - FREE
Posting comments on friends' pics and "likes"- FREE
Taking quizzes - hmm....okay, FREE

Adding friends - say, FREE for first 300 friends, and you get charged something like 1 US cent for each friend exceeding this number

Uploading pics - can be FREE for first 50 pics, and then a 2-cent charge on each pic thereafter (hey, bandwidth does cost money)

SuperPoke! - definitely 1 cent for each

Playing games - perhaps FREE at first, but if you keep on playing Yoville or Typing Maniac for hours on end, it will cost you.

The total amount you spend each month would then be charged to your credit card bill.

Of course, the general level of activity would likely slow down, as people think twice about taking certain actions, etc. You might even argue it makes it so much less fun!

b) Purchase of stored-value units

Taking off from the prepaid cellphone card industry, one can opt to buy a certain amount of units (say US$10.00) online from Facebook, which would be debited as you play games, give gifts, upload pics, etc.

This would work for users who fear they would be unable to control their "spending" on Facebook actions.

Meanwhile, Facebook management can allay advertisers' concerns, by pointing out that the members who dropped out tend to be those people who likely didn't log in too much; didn't update their profiles; only had a few friends, etc. (in general, those people who never got into the spirit of things, as it were). Hence the remaining membership are the "quality" ones, who are more receptive to ads.

Further, they can continue to beef up content and features, to prevent the drop-out rate from becoming too high. To convince non-users to sign up under the new pay-as-you-go scheme, they can make an online ad campaign that goes something like, "Facebook is where the fun is." or "Facebook: Where all your friends are talking about everything, except you."

No. 2 : "If Facebook is going to start charging me for using its site, i'll just move to other social networking sites."

Again, this is certainly a valid response. But which site(s) offer a viable alternative to Facebook?

Friendster is passe and full of scammers. Multiply and MySpace's features are lacking in comparison.

One might make the following riposte, "Well, i'm sure someone will create a new social networking site, with even better features, and everyone will go there."

True, this is very possible. But would this hypothetical new site's business plan be based on advertising revenues only? How then would it go about making a positive return on investment?

So, dear reader, what do you think? Is the above analysis actually worth contemplating about? Or is it pure hogwash?

Hence, I'm asking you (yes, you) this question:
Would you pay to be on Facebook?

Hit the comment button NOW.