WOULD YOU PAY TO BE ON FACEBOOK?



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 going 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 users (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.

HOW TO BECOME A MILLIONAIRE IN ONE EASY STEP
(Part One, Saigon-Siem Reap-Hanoi-Halong vacation)


Forget all those 'Rich Dad, Poor Dad' books, and their ilk.

All you have to do is board a plane and fly to Vietnam, where one US Dollar gets you the equivalent of 17,700 VND [Vietnam Dong].

So, when i exchanged US$100 at the airport upon arrival in Ho Chi Minh (also known as Saigon) city, i was handed more or less 1.7 million VND. Woohoo!

As can be seen from the pic below, the VND notes come in big denominations, most commonly 100,000, 50,000 and 10,000 VND.
The largest note is 500,000 VND [not in photo].

The smaller ones, such as the 500 VND and 1000 VND notes, also come in coins and are pretty much useless, since most prices seem to start at 10,000 VND.






Of course, it took a while to get used to seeing and hearing prices quoted at such huge amounts. And even more difficult was mentally converting prices into US dollars (and then on to PHPs).

While at the Ben Thanh market, i inquired how much a box of coffee was.

"50,000 VND," stated the rotund vendor.

"What?! Mac Qua! [Too expensive!]" i cried, only to realize a few seconds later that this amount was something like US$3.00 only. Well, it was still expensive, and we eventually bargained her to a more reasonable level.

A sampling of other typical prices include:

Paper fan at Ben Thanh market = 15,000 VND
Pho [noodle soup] at a Pho 24 outlet = 34,000 VND
N & M [local upscale brand] men's pants = 499,000 VND

Of course, the astute reader will point out that there is a catch to my millionaire status in Vietnam. After all, it is not the amount of money per se that matters, but the amount of goods and services one can purchase or exchange for it.

As my college thesis partner-turned-financial whiz MonT. will probably put it, "You may be a millionaire on paper, but you have the purchasing power of a pauper. Olats ka pa rin! [Loser!]"

JONAH'S FRUITSHAKE & RESTAURANT
(Part 3, Boracay series)






Although it is officially a restaurant which is open 24 hours, the words "Jonah's" and "fruitshakes" are pretty much synonymous with each other in Boracay. Jonah's boasts of the "best fruitshakes in the island", and everyone pretty much agrees this is indeed the case.

Such is its popularity that during mid-afternoons, the restaurant is packed with beachgoers in various degrees of undress, all patiently enduring the sweltering heat and humidity while waiting for their name(s) to be called. Expect to wait for up to 30 min. to get your fruitshake.

This board below shows the variety of fruitshake flavors available at Jonah's:




Which raises a hypothetical question, what if Jonah drank too much beer one late afternoon (say, 6 bottles of San Mig Light) and had a vivid dream involving the idea of expanding his fruitshake empire? Would it take off in other parts of our archipelago?

Our group had some rather fierce discussions about this. Someone opined Jonah's should expand to other beach areas such as Panglao Island in Bohol, while another voice said they could put up an outlet in Pansol, Laguna or perhaps Subic. Alternatively, would Jonah's make it big in Metro Manila (in the form of a kiosk in a shopping mall perhaps)?

Using the classic 4Ps of Marketing as our basic analytical framework, what insights can we cull to help the hypothetical Jonah in answering his hypothetical question?


Product - As we saw from the board above, Jonah's has a very wide variety of shakes, from the regular fruit combinations (Mango Papaya) to the more unconventional (Banana Choco Peanut, anyone?). Thus, one can go there everyday and find something one hasn't tried yet.

On the debit side, the ingredients that go into these shakes are hardly a secret. Thus, one would think it is quite easy for any upstart competitor to duplicate Jonah's combinations, and poor Jonah would not have any unique recipe at all.


Price - Basic fruit combinations (say, Mango Papaya shake) are priced at PHP82 for a 500 ml takeout bottle. A rather extreme exception is the Strawberry shake, which goes for PHP165. Even if you assume the strawberries are flown in fresh from La Trinidad. . .PHP165 for a fruitshake? Seriously?

By way of comparison, a typical Fruit Magic or Big Chill shake is something like PHP45 (12 oz) and PHP75 (22 oz).

If Jonah's opened in Metro Manila, would it be able to price its shakes at a premium? (I.e. would you pay more for a Jonah's shake since a) you tried it before in Bora and liked it a lot; b) you haven't been to Bora, but want to feel like you've been there; c) since it's famous in Bora, it must be better than other fruitshake brands; and d) all of the above?) Maybe, or maybe not.


Place - Jonah's beachfront location undoubtedly helps in pulling in the crowd. But so does the fact that it doesn't really have a clear-cut, well-known competitor in Boracay.

If Jonah's were transplanted to another setting where it had to compete with other fruitshake stands, what would the outcome be? Should it decide to target other beach areas such as Panglao, Bohol or Mactan, Cebu, etc., where the hot weather generates a natural demand for its products?


Promo - As far as we know, Jonah's does not undertake any promotional activity. It basically relies on the positive word-of-mouth generated over the years.

If it does expand elsewhere, it would have to make a promotional push. But this should not be a major problem, as it could capitalize on its fame and reputation in Boracay. The natural tagline could be something like, "Boracay's best and/or most famous milkshakes, now here in _______________!!!"


If you want to hear my two cents' worth of opinion, i'd say the safest bet for our dear chap Jonah is to open a branch on the beachfront, in between Stations 2 and 3. This way, it captures the market of those people who don't want to walk all the way to Station 1; also, it will still be in home territory, and no marketing effort would really be needed.

Whew, all this thinking is frying my brain. . .now, where the hell is that Mango Lemon Vanilla Strawberry Avocado shake i ordered 2 hours ago??


(Jonah's is located on the White Beach front, Station 1 area)

Puzzlingly low prices at THEWI THAI MASSAGE


Thewi Thai Massage is a spa chain with two branches in Cebu, and they opened their first branch in Metro Manila just two months ago. To get the obvious question out of the way, 'Thewi' means "angel" in Thai, according to their receptionist.

Their prices are really cheap: PHP200 for full body massage (60 min.); PHP 150 for foot reflexology / back massage / head massage (60 min), and PHP 75 (30 min).

Upon entering this establishment, the first thing that hits you is the menthol scent. . . great with clearing the nostrils and invigorating the mind, but it does get overpowering after a while.

The foot reflex area is separated by a wooden partition from the reception area. The soft leather chairs are quite comfy, although it can be a little noisy as people chitchat and use their phones in the reception.

Nevertheless, i felt the foot reflex was above average, as my masseuse can really put on the pressure with her fingers. Quite cute is that she even does a wai before and after the massage!

So, i'm thinking, why are Thewi's prices so low? Off-hand, comparable prices for other nearby spas would be PHP350 - 450 for body massage, and PHP 250 - 350 for foot massage. Were Thewi's owner to raise its prices by 50%, they would just be around (or even still under) the same level as their competitors.

Further, i think this would hardly have any effect on the number of people patronizing Thewi, since at these low price levels, the demand curve is probably quite steep (i.e. demand would be mostly price-inelastic, and most customers would not mind the increase) So why don't they go ahead and raise prices and make more money?

Possible reasons i've thought of:

Could it be Thewi skimped on training the masseuses and are implicitly admitting they are not authentically Thai? But my masseuse informed me they were trained for 4 months prior to opening.

Could it be due to Thewi's flat compensation scheme (each masseuse gets a fixed amount per day, regardless of number of customers served; whilst most other spas give no fixed salary, and the masseuses get a fixed amount per customer served) , which gives them a low-cost advantage? Not necessarily. On slow days, this payment scheme would not be optimal for the owner.

Could Thewi be pricing low as an intro offer only, and will increase prices by, say, next year? Possible, but all those foregone revenue is really sayang. Besides, if they think their low prices would make their nearby competitors close down, that's unlikely. And the concept of Thai massage is already well-known, so it's not as if they have to offer low prices just to educate the market.

Since the spot where Thewi is located is considered rather unlucky (due to the establishments who have opened and closed down there over the years), could the owner be hoping (or praying) that low prices would offset the bad karma / feng shui / evil spirits of the place?
Hmmm....

So, basically i'm stumped for a really satisfying explanation. Whilst this dismal economist enjoys the pain and pleasure a foot reflex massage gives, it unfortunately does nothing for my little grey cells. :D



(Thewi Thai Massage's first Metro Manila branch is located along D. Tuazon Ave., Quezon City. It is across St. Theresa's College)

MYSTERY OF THE RAPIDLY ESCALATING MEAL PRICE


During dinner with my long-time (since grade school, imagine that!) friend Sh. last week [see previous post about Zensho Japanese resto], we wondered why the eat-all-you-can price for dinner was PHP100 higher than for lunch.

I have also observed this for Alba's Restaurante Espanol, which charges PHP475 and PHP575, respectively, for their lunch and dinner eat-all-you-can buffets (including paella and cochinillo). Quite frankly, i've always wondered why they set different prices for the same type of meal.

The obvious answer is that there must be some special dish(es) available in the dinner buffet, which isn't offered during lunch time. But this doesn't seem to be the case for Alba's, based on the couple of times i've eaten there.

And i know that in the US, one can see from the menu of some restos that entrees are priced higher during dinner than for lunch. (One Japanese resto in SanFo comes to mind) So why this price difference?

Sh. and i formulated some theorems:

Is the dinner crowd generally more affluent, and can afford (or is willing) to pay a higher price? Thus, the resto is maximizing profits by charging more.

Or does the dinner crowd eat more food, costing the resto more money? Therefore, the resto charges more to maintain its profit margins.

Or does the dinner crowd take more time eating (unlike the lunch crowd, which is more likely to have to go back to the office, etc.), thereby reducing the resto's turnover, and forgoing income from people who wanted to eat, but didn't want to queue? Thus, the resto charges more to compensate for the foregone income from would-be customers.

Or perhaps it is more costly to serve dinner (i.e. electricity costs, security / parking attendant, overtime pay for waiters, etc.) than lunch? Hence, the resto charges more to cover the extra costs.

Or maybe the resto deliberately sets the price for lunch lower, hoping customers would eat during lunch time (i.e. "slow" period), instead of dinner time ("peak" period)? But this assumes customers are flexible and/or indifferent regarding when they can or when they want to go to the resto.

Sh. and i failed to find an explanation which totally satisfied us.

Can anyone out there provide the answer to this dismal economist?