
Facebook May Be Growing Too Fast. And Hitting The Capital Markets Again. - qhoxie
http://www.techcrunch.com/2008/10/31/facebooks-growing-problem/
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pxlpshr
I just don't see advertising revenue scaling and sustaining Fb. They need to
generate hard cash, probably something along the lines of a subscription-
based. Perhaps they should consider making Fb apps relevant again, except
structured in a way that generates significant revenue similar to the
AppStore. But I still don't see this sufficing.

Promotional leverage aside, the freemium model seems to frequently drown in a
big hole of gluttony. And the point at which you try and change your model,
often creates negative backlash from unappreciative consumers.

Certainly in retrospect it's easy to point out Fb's faults... but I feel like
they should have limited free accounts unless you were a subscriber. Only paid
members can create groups, pages, etc... but free members can join as many as
they'd like. The social benefits still remain in tack, Fb is compensated for
all this data storage, and helps curb pollution in the Fb community.

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mdasen
Step 1: Get a lot of users; Step 2: ???; Step 3: Profit!

This is why LinkedIn's ability to monetize is so important. Facebook has
already raised half a billion and will probably need to raise that amount
again to survive until it comes out with its business plan. According to the
TechCrunch figures, they're loosing $142M/year (dangerous assumption, I know).

At that point, maybe Facebook can become profitable, but how profitable? I
don't really feel like running net present value calculations (maybes someone
else can), but when you're talking about VC of $1B and the better part of a
decade before profitability, you quickly see how much someone has to make to
actually be a worthwhile venture. Maybe Facebook will start making billions
per year. Maybe Facebook just won't be able to monetize their traffic (to a
profitable level).

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gaius
Facebooks strategy has to be monetizing events. Create a cinema trip event,
everyone who RSVPs gets their ticket booked automagically, Facebook gets a
commission. Create a LAN party event, order pizza at the same time, Facebook
gets a commission. Or sports or travel tickets or whatever. The scope here is
vast, but to get there they have to be the de facto social calendar.

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nazgulnarsil
i predict a crash, burn, and firesale.

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Retric
They will probably crash and burn in 2009 or 2010, however if they have 265
million / year in revenue they should be able to cut back staff 6months before
they run out of money and significantly extend their runway. However, doing so
would reduce their value to future investors which would make raising money
harder and significantly impact morale.

The fact they are looking for money now is a good sign they understand the
problem, but if that does not quickly pay off they need to think about cutting
down their costs. Even if it damages their growth.

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tyohn
"750 employees and growing"? Why do they need 750 employees?

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comatose_kid
How many do you think they would need?

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petergroverman
This is a great article... you think facebook will ever charge us to keep our
profiles?

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mdasen
No. Social networks are worthless without a large volume of users (or a
critical mass in a niche). Charging money cuts down on the number of users and
lowers the value of the network. Plus, people would just go to providers who
didn't charge money - who either found a way to monetize effectively like
LinkedIn or a new contender who is simply naive and has no business plan as
well, but will offer free everything in the meantime.

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petergroverman
Truth be it told... I'd pay $9.95 a month in order to KEEP my FaceBook
account. I WILL NEVER RECREATE THE CONNECTIONS and tag all the photos and
'start over.' I'd pay $ no question to keep my account from eternal deletion.

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mdasen
OK, _you_ will never recreate that friend network and re-upload and tag all
those photos. _You_ will pay $10/mo to keep your profile alive.

However, what happens when your friends decide, "screw this, I'm out"? All of
a sudden, those connections that you were paying for aren't there anymore. At
best, I'd say Facebook could get 50% of its users to pay for its service. Once
half of those connections are gone, the service isn't worth as much to you.
Likewise, as users leave, so do their photos. Again, you're in a situation
where Facebook's value is being lowered for you.

That's what's so hard about pricing. Facebook _is_ worth $10/mo to _you_. It
_isn't_ worth that much to _others_. However, it's only worth $10 to you
because of the other people on it (many of whom wouldn't pay that). Which
means that if Facebook starts charging money, suddenly it isn't worth $10 to
you because much of the content from other users (their profiles, your
connections to them, their photos) is gone.

There's a critical mass issue. Even if you say something like, "well, they
could charge for premium stuff like the ability to say who gets to see your
profile" which is free now. In that case, lots of users won't post content as
freely and the service looses some amount of its value.

So, Facebook really doesn't have the opportunity to charge people because once
it does, the value goes down as the more marginal users are no longer there.

