Making Money
How does Facebook make money?
Easily. However it wants. Ooooh, you bought this book to get
some real insights. Gotcha.
But first, let me tell you how this book is going to make me some
money. (Hint: it is the same way Facebook makes money.) On the
website, I’m going to sell some ads. If you happen to own or
manage a major brand, and you want your brand permanently
associated with the glory of Facebook, in black and white on
beautiful recycled paper no less, just send me a check47. Every
56 Inside Facebook
Copyright, Karel Baloun, 2006. All rights reserved.
47 Given global warming (climatecrisis.net, http://www.technologyreview.com/
special/oil/) and peak oil (lifeaftertheoilcrash.net), I think i’ll not buy Japan for a
cool $7 million.
word here is the god honest truth48, except where dripping with
sarcasm or, worse yet, humor.
If only we, our own lowly and humble selves at fbbook.com, had
the market visibility, relationships, and cream-of-the-internetcrop
sales team that Facebook has to reach potential markers. I
also wish we had complete and full penetration of the college
demographic. While this wasn’t true a year ago, now I suspect
Facebook quite easily gets interest from anyone who has a
product targeting the college age population, without even really
trying that hard.
Facebook, similarly, makes money in two ways: ads on the site
with super fancy targeting (based on the information users enter
into the site about themselves) and sponsored groups, events,
notifications.
In the summer of 2005, I enjoyed a lunch with Apple’s Dave Morin
and Matt as we all discussed the natural fix between the Facebook
and Apple brands. Dave architected the first big marketing deal
on Facebook by creating the Apple Students Group. The group
was created around the idea that college students love well
designed, cool technology, especially as related to music, and this
would be a great place to generate a worthwhile conversation. So
I heard the initial chat about whether Apple could co-brand a
store on the site, or co-market iTunes. The group now has a half
Karel Baloun 57
I’ve found something to put here. Your turn.
48 Sometimes I have paid affiliate links, which are still rare in books; dunno why.
million members, and iTunes has given away almost 250 million
free songs to students.
I bet the Apple and Facebook relationship will continue to
strengthen over time, despite the massive advertising deal with
Microsoft, both for sponsored listings and contextual ads.
A third way facebook makes money is with Flyers. This method is
most fascinating because it is actually a facebook feature which
just happens to bring in money, by enabling user advertising on
their own network. If Flyers were free they would be actually less
useful, because limiting postings to paid advertisements reduces
clutter and spam. Facebook Flyers are superior in every way to
archaic posting of leaflets around campus.
So, Facebook make money in three ways: sponsored groups,
targeted ads and flyers.
What if a social network company wanted to make a lot of money?
Lets consider this from two perspectives: that of a company with
good intentions, and that of an evil company just out to make
gobs of cash, with the inevitable slippery slope between them.
Many innocuous methods exist for ad or brand placements on a
social network site. If I list Oreos as one of my profile interests,
this could display with a (tm) symbol linking to Nabisco’s site, and
the Oreo link click-thru to everyone interested in Oreo’s could
have Nabisco and competitors paid links at the top. Or Oreo
58 Inside Facebook
Copyright, Karel Baloun, 2006. All rights reserved.
could even be in Nabisco’s preferred font. Or if I say I like Macs,
that statement could be replaced by the Apple logo. This might
look annoying, or look like selling our to corporate masters, but if
we just look only at the words, at the content, the actual
information and location doesn’t change. People clearly come to
Facebook to look at content, not to click on ads, so blending the
content with the ads is very compelling.
If a closed social network is tied or based to a specific location,
this also opens up many opportunities.
A site could sell or otherwise offer valuable marketing reports to
a wide variety of interested parties, since by aggregate, the social
network data embodies what memes and products are hot among
its members. So this aggregated information is valuable to
outsiders, and the social network company adds value by
collecting, filtering and analyzing this information.
A site could even sell user content, such as a aggregation or
collage of nice photos49, but while some user agreements do not
prohibit it, I suspect it crosses a line beyond which there would be
a user backlash.
A site could partner to sell products to its audience, both by
sharing its brand and by offering ad space for products available
at “its own store”.
Karel Baloun 59
I’ve found something to put here. Your turn.
49 Actually, this url probably got into google by being linked from another site
(“site:facebook.com sterger”) and is even hotter.
In general, social network websites have tremendous latent value,
for two reasons. Both reasons are amazing, because all of the
value is provided by the community, not by the site, or by
anything the social network site does. First, within a social
network, users want to demonstrate their status and value, and
they will pay money for “pro” badges (flickr) or for virtual flowers
(hotornot) or for other virtual digital goods. These, being
completely virtual and unreal, have no tangible value whatsoever,
but they accrue value from how they are used and viewed within
the social network. Second, the members of a social network have
a lot of knowledge and skills, which are inherently useful to others
in the network and to outsiders willing to pay money for them. If
the site empowers users to be useful to each other, such as by
giving a product/service recommendation interface, the site can
take a cut of the value users have to each other. The founder of
hotornot.com describes his unique and long surviving dating site:
Two strangers meet in a bar, one smiles showing the other person
he thinks she’s hot, she smiles back saying her eyes agree, but
someone is going to have to buy drinks, and the bar takes a cut.50
People wonder why social networks could have billions of dollars
of value. While I’m not sure how much value a billion dollars
should have, whether denominated in gold, oil, big macs,
mcmansions or green pieces of paper, I do believe social networks
have a billion dollars in value relative to other internet properties.
60 Inside Facebook
Copyright, Karel Baloun, 2006. All rights reserved.
50 Actually, what he said was “someone will have to buy drinks, and that someone
will be me.”
First, Facebook either is profitable or is really close. Social
networks are not especially expensive to operate. Engineering
costs predominate, and writing social networking web
applications isn’t hugely difficult, which is why, when you think
about it, there are so many of them. Second, the network effects
of social networks (once you are on one with all of your friends,
you’d all have to move to another one together to have shared
value) and the personal effort invested into entering all of your
information and your site-collected usage history, together create
a high barrier to enter for new networks. Which is why the leaders
keep big leads, and are frantic about expanding market share,
and competitors target niches to establish themselves. Third, as
I’ve shown above, and many business people smarter than me will
show you better soon, the monetization of social networks has
only just begun.
Facebook may print money.
I’d like to see a Facebook IPO, now. But see, that’s why I’m not
running the show! Apparently, I have yet to read Seth Godin’s
Small Is The New Big.
Certainly there are advantages to staying privately owned, such as
being able to avoid complex laws and reporting requirements of
public companies. A common reason to go public is to raise cash,
and Facebook doesn’t need that. Another reason is to convert
equity to cash. A main reason against, which the google founders
partly managed to mitigate by having a highly irregular IPO with a
class of shares that had much less control/voting power, is a loss
Karel Baloun 61
I’ve found something to put here. Your turn.
of control over the destiny of the company. Zuck carefully
cultivates and maintains his effective control.
While giving equity is printing money, the money has only
theoretical value, until it is exchangeable. The other startup exit
strategy is to be purchased, either by a public or private entity. If
public and mostly an equity deal, it’s like an IPO, except that
someone else has already done the paperwork. No one knows
when any such event will happen, but I’ve seen Zuck be very
reasonable when listening to advice.
“I’ll do X until I get bought by Y” is such a common internet
business strategy, with Google, Microsoft, Yahoo, Cnet, and the
panoply of media companies as suitors. Zuck has always intended
for Facebook to become a viable, profitable business on its own.
Wise, as it maximizes flexibility. Lucky he enjoys running it so
much.
How does Facebook make money?
Easily. However it wants. Ooooh, you bought this book to get
some real insights. Gotcha.
But first, let me tell you how this book is going to make me some
money. (Hint: it is the same way Facebook makes money.) On the
website, I’m going to sell some ads. If you happen to own or
manage a major brand, and you want your brand permanently
associated with the glory of Facebook, in black and white on
beautiful recycled paper no less, just send me a check47. Every
56 Inside Facebook
Copyright, Karel Baloun, 2006. All rights reserved.
47 Given global warming (climatecrisis.net, http://www.technologyreview.com/
special/oil/) and peak oil (lifeaftertheoilcrash.net), I think i’ll not buy Japan for a
cool $7 million.
word here is the god honest truth48, except where dripping with
sarcasm or, worse yet, humor.
If only we, our own lowly and humble selves at fbbook.com, had
the market visibility, relationships, and cream-of-the-internetcrop
sales team that Facebook has to reach potential markers. I
also wish we had complete and full penetration of the college
demographic. While this wasn’t true a year ago, now I suspect
Facebook quite easily gets interest from anyone who has a
product targeting the college age population, without even really
trying that hard.
Facebook, similarly, makes money in two ways: ads on the site
with super fancy targeting (based on the information users enter
into the site about themselves) and sponsored groups, events,
notifications.
In the summer of 2005, I enjoyed a lunch with Apple’s Dave Morin
and Matt as we all discussed the natural fix between the Facebook
and Apple brands. Dave architected the first big marketing deal
on Facebook by creating the Apple Students Group. The group
was created around the idea that college students love well
designed, cool technology, especially as related to music, and this
would be a great place to generate a worthwhile conversation. So
I heard the initial chat about whether Apple could co-brand a
store on the site, or co-market iTunes. The group now has a half
Karel Baloun 57
I’ve found something to put here. Your turn.
48 Sometimes I have paid affiliate links, which are still rare in books; dunno why.
million members, and iTunes has given away almost 250 million
free songs to students.
I bet the Apple and Facebook relationship will continue to
strengthen over time, despite the massive advertising deal with
Microsoft, both for sponsored listings and contextual ads.
A third way facebook makes money is with Flyers. This method is
most fascinating because it is actually a facebook feature which
just happens to bring in money, by enabling user advertising on
their own network. If Flyers were free they would be actually less
useful, because limiting postings to paid advertisements reduces
clutter and spam. Facebook Flyers are superior in every way to
archaic posting of leaflets around campus.
So, Facebook make money in three ways: sponsored groups,
targeted ads and flyers.
What if a social network company wanted to make a lot of money?
Lets consider this from two perspectives: that of a company with
good intentions, and that of an evil company just out to make
gobs of cash, with the inevitable slippery slope between them.
Many innocuous methods exist for ad or brand placements on a
social network site. If I list Oreos as one of my profile interests,
this could display with a (tm) symbol linking to Nabisco’s site, and
the Oreo link click-thru to everyone interested in Oreo’s could
have Nabisco and competitors paid links at the top. Or Oreo
58 Inside Facebook
Copyright, Karel Baloun, 2006. All rights reserved.
could even be in Nabisco’s preferred font. Or if I say I like Macs,
that statement could be replaced by the Apple logo. This might
look annoying, or look like selling our to corporate masters, but if
we just look only at the words, at the content, the actual
information and location doesn’t change. People clearly come to
Facebook to look at content, not to click on ads, so blending the
content with the ads is very compelling.
If a closed social network is tied or based to a specific location,
this also opens up many opportunities.
A site could sell or otherwise offer valuable marketing reports to
a wide variety of interested parties, since by aggregate, the social
network data embodies what memes and products are hot among
its members. So this aggregated information is valuable to
outsiders, and the social network company adds value by
collecting, filtering and analyzing this information.
A site could even sell user content, such as a aggregation or
collage of nice photos49, but while some user agreements do not
prohibit it, I suspect it crosses a line beyond which there would be
a user backlash.
A site could partner to sell products to its audience, both by
sharing its brand and by offering ad space for products available
at “its own store”.
Karel Baloun 59
I’ve found something to put here. Your turn.
49 Actually, this url probably got into google by being linked from another site
(“site:facebook.com sterger”) and is even hotter.
In general, social network websites have tremendous latent value,
for two reasons. Both reasons are amazing, because all of the
value is provided by the community, not by the site, or by
anything the social network site does. First, within a social
network, users want to demonstrate their status and value, and
they will pay money for “pro” badges (flickr) or for virtual flowers
(hotornot) or for other virtual digital goods. These, being
completely virtual and unreal, have no tangible value whatsoever,
but they accrue value from how they are used and viewed within
the social network. Second, the members of a social network have
a lot of knowledge and skills, which are inherently useful to others
in the network and to outsiders willing to pay money for them. If
the site empowers users to be useful to each other, such as by
giving a product/service recommendation interface, the site can
take a cut of the value users have to each other. The founder of
hotornot.com describes his unique and long surviving dating site:
Two strangers meet in a bar, one smiles showing the other person
he thinks she’s hot, she smiles back saying her eyes agree, but
someone is going to have to buy drinks, and the bar takes a cut.50
People wonder why social networks could have billions of dollars
of value. While I’m not sure how much value a billion dollars
should have, whether denominated in gold, oil, big macs,
mcmansions or green pieces of paper, I do believe social networks
have a billion dollars in value relative to other internet properties.
60 Inside Facebook
Copyright, Karel Baloun, 2006. All rights reserved.
50 Actually, what he said was “someone will have to buy drinks, and that someone
will be me.”
First, Facebook either is profitable or is really close. Social
networks are not especially expensive to operate. Engineering
costs predominate, and writing social networking web
applications isn’t hugely difficult, which is why, when you think
about it, there are so many of them. Second, the network effects
of social networks (once you are on one with all of your friends,
you’d all have to move to another one together to have shared
value) and the personal effort invested into entering all of your
information and your site-collected usage history, together create
a high barrier to enter for new networks. Which is why the leaders
keep big leads, and are frantic about expanding market share,
and competitors target niches to establish themselves. Third, as
I’ve shown above, and many business people smarter than me will
show you better soon, the monetization of social networks has
only just begun.
Facebook may print money.
I’d like to see a Facebook IPO, now. But see, that’s why I’m not
running the show! Apparently, I have yet to read Seth Godin’s
Small Is The New Big.
Certainly there are advantages to staying privately owned, such as
being able to avoid complex laws and reporting requirements of
public companies. A common reason to go public is to raise cash,
and Facebook doesn’t need that. Another reason is to convert
equity to cash. A main reason against, which the google founders
partly managed to mitigate by having a highly irregular IPO with a
class of shares that had much less control/voting power, is a loss
Karel Baloun 61
I’ve found something to put here. Your turn.
of control over the destiny of the company. Zuck carefully
cultivates and maintains his effective control.
While giving equity is printing money, the money has only
theoretical value, until it is exchangeable. The other startup exit
strategy is to be purchased, either by a public or private entity. If
public and mostly an equity deal, it’s like an IPO, except that
someone else has already done the paperwork. No one knows
when any such event will happen, but I’ve seen Zuck be very
reasonable when listening to advice.
“I’ll do X until I get bought by Y” is such a common internet
business strategy, with Google, Microsoft, Yahoo, Cnet, and the
panoply of media companies as suitors. Zuck has always intended
for Facebook to become a viable, profitable business on its own.
Wise, as it maximizes flexibility. Lucky he enjoys running it so
much.
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