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Original Post (Facebook Is Worthless):
Salacious headline? Yes. True? Also yes.
This is not a slam against the EXTREME popularity and unprecedented GROWTH story that is Facebook. This is a reality check of an unsustainable business model.
Much like a homeowner who can no longer afford an overinflated house purchased during the height of the bubble and decides to walk away, Facebook (with claims that it will hit ONE BILLION users in the not too distant future) has given it all away for free for far to long to change.
But change it must or Facebook Is Worthless.
Imagine the cable networks at their inception (especially premium channels like HBO) giving the channel to anyone for free at the beginning and then trying to convince customers to pay down the line. It’s a daunting task. One that Hulu is going through now – but they made the hard decision, and even though traffic and video streams will certainly fall, it will soon be profitable because it wasn’t too late to right the ship.
Imagine Disney/Pixar putting out Toy Story 3 for free in theaters and trying to make up their costs by throwing up billboards along the walls. What kind of idiot would do that? It would never be considered.
People love (and some actually depend on) Facebook, but it is too late to right the ship – and not just because no one cares or pays any attention to the banner ads that are thrown up against everyone’s status updates. It’s because people are starting to get really bored with it.
There are some late adapters that are still in the ecstasy phase of seeing their old high school friends as they look today (Facebook has ruined surprise factor of high school reunions forever, but I digress), but for the most part – at least in my case – most of my Facebook friends have stopped participating. They will pop on once a day or so just to see if anyone has posted any new drunken pictures or family photos of the new baby, but that’s about it.
My Facebook experience now is basically the same five people posting the same boring crap.
The Bored Office Worker who posts about “needing coffee” – and “can’t wait for Happy Hour!”
The Super Mom who claims every morning – “Went to 8 museums adn made banana bread all before 10am! My kids are awesome and sooooo funny!”
The Quoter who searches quotation websites looking for some daily affirmation that will get about 15 “Likes” and a few “I’m going to use that!” replies.
The Reviewer who writes stuff like “Smoke Monster? Shit Monster if you ask me!”
The Pissed Off Traveler with daily pearls like “10 hours on the tarmac!” and “Yet another delay, thank you American Airlines!”
And that’s about it. Every day, the same five people and I have over 300 Facebook friends (even though I only see about three friends actually in person in any given month).
The valuation on Facebook is so high that no one could possibly acquire it now (not even my employer, the insanely deep-pocketed Manka Bros. Studios) especially considering there is really no monetary growth story.
As it becomes more of a digital dumping ground, costs continue to rise. It has peaked as a global fascination. Check the value of Bebo, Myspace, Friendster, etc. and you’ll see the future of Facebook. Even though Mark Zuckerberg claims he’s different than all the others.
So here’s what Facebook needs to do – start charging every current or new user $0.99/month. Just ninety-nine cents per user per month to use all the features they currently use. New services may make it possible to bump that up to a premium fee down the line.
Millions will leave and start some “Facebook Should Be Free” movement, but other millions (like my five daily posters who feel they need to be heard) will definitely pay. Because $0.99 is nothing. It’s the purchase price of a pig on Farmville. There will still be advertising and cross-promotional opportunities and corporate sponsorships, etc. – multi revenue streams.
But the free culture has to change or Facebook is Worthless.
Deep down, at least to me, this seems to be the reason the IPO hasn’t happened. Zuckerberg says he’s not interested and will delay the IPO as long as possible. Yeah, because it’s a $15 billion company (so they say) with costs that exceed revenue – and no signs of that ever changing.
I wouldn’t be interested in an IPO either.
Someone enlighten me and correct my ignorance.
Jill Kennedy – OnMedea
Who do you think the advertisers pay? Facebook! That’s why they have such huge capitalisation.. You really don’t understand what’s going on right now at all do you Jill?
Hey Nolan,
Are you kidding me? What do you think you’re posting on? A .com. With ads on the side (please click give me money)… Look at broadcast networks – squeezed out by cable networks and their DUAL REVENUE STREAMS – so now the broadcasters have to fight for retrans fees. The dual revenue stream is the only chance for real growth. Do you think advertisers are going to increase by double-digits every year to please Wall Street? If they don’t, Facebook (as a public company) will be hammered. Google gets hammered even when they blow through expectations (hammered because they missed the ‘whisper number’).
Plus, I say in the story that it would be a disaster for Facebook to start charging a subscription fee – but that’s the only chance they have to survive. So it’s really a tough situation they are in.
Thanks for the reply Jill,
I understand your argument, but I believe you’re misguided. Here, check out the current price for Google stock:
GOOG – Google Inc. (NASDAQ)
Open: 470.52
High: 471.75
Low: 468.55
Volume: 909,794
Avg Vol: 2,395,000
Mkt Cap: 149.79B
When did they start implementing ‘dual’ revenue streams? Google AdSense reminds me alot of http://www.facebook.com/Ads .. I guess they’re making enough money off of it. As long as the owners are rich and getting richer, it’s got to be a good opportunity for investors. Provided that the owners of the facebook know how to pivot and change their business model into an extremely large and profitable company, which I truely believe they can do without moving to a subscription service (or charging the users in any way).
Hey Nolan,
Sorry if you think that FB has a stronger business model than Google. Google Ad Sense is not the reason they blow through their earnings estimates every quarter. Google Search is why. Search “Smartphone” and some company has paid Google big bucks to be at the top of that list. I’m sure Facebook could do that same sort of thing – but here’s the rub – NO ONE CARES ABOUT FACEBOOK ADS and the more they stick in front of our faces, the more we are inclined to stop logging on. Google offers a service because we’re really trying to figure out a Sushi restaurant in Studio City. It has a real purpose.
Jill,
Google does not get paid for search rankings, they get paid for keyword ads. So a company may pay for the “Smartphone” keyword ad and be placed at the top of page as a “sponsored ad” but they won’t be the top search result.
Sorry Jill, but I think you are quite misinformed.
Facebook definitely has other revenue streams that are already performing quite well, and there are many additional opportunities outside of a subscription model that will allow Facebook to be even more profitable. (hint: think FB credits + FB being on all major websites)
Part of the reason why Facebook is so successful is because it focused on product and experience over monetizing early on. Not all companies can follow this strategy, it takes an innovative and well executed product and plan to do this. If you think that an online company with over 500 million users will ever be worthless than you are sadly mistaken.
Jill, while I agree with you on the “worthlessness” of Facebook, in the “without practical usefulness” sense of the definition, I do not agree with you on the “without value.”
Sure, you’ve got 5 people spamming up your news feed, but you have 5 completely devoted users creating hundreds of pageviews for FB per day. Now multiply that times 100 million across the service.
Most websites are totally worthless (ever been to hotornot.com?). Facebook isn’t any difference. There are certainly some worthwhile use cases, but they’re in the minority. Farmville impressions? In the billions.
But to say it is a sinking ship? Are those 5 spam-tastic friends of yours showing any sign of slowing down? Nope.
Facebook hit critical mass for advertisers and is now THE place for reach (and targeting) because of user data they have.
TCrunch reports they’ll hit $2 billion in revenue this year, which is more like a $4 billion current run rate, and have been profitable for almost a year.
You mentioned charging? They could lose HALF their users if they started charging that, and STILL be making more in annual revenue at their current run rate with their current free/adsupported model (would make $3 billion off 250million users at $12 annually).
So although FB is a wretched service, that doesn’t mean investors aren’t sitting on a gold mine.
You realize I’m not really saying that Facebook should start charging – I’m just saying they have no choice. Advertising won’t cut it because, frankly, people posting pictures and status updates of family reunions and drunken nights with frat brothers and hookers just don’t work for advertising and certainly doesn’t make anyone want to click an ad.
Of course there is value. It’s has huge value – but not more value than its cost. The growth can only slow. Revenue may rise but costs will too. A company, in my opinion, with more costs than revenue is worthless. It could be a loss leader for some giant media corporation who doesn’t care about the costs and wants to use FB as a platform for announcing new shows, movies, books, etc. But as a standalone – FB is in big trouble sooner rather than later.
you don’t seem to have any idea of what you’re talking about. facebook makes money and has been making money for a while now (since september 2009 to be exact). charging consumers is both unnecessary and incredibly stupid.
you sum up your facebook experience and take it as an example that for sure everyone else must use it the same way. we don’t.
you talk about maintaining “multi revenue streams”. facebook already has that. they have paid advertising, facebook credits, pages (which require payment for upgraded features). charging costumers is another way, but they clearly don’t need it.
this article is a flashy title with little depth. nice try tough…
facebook sucks and so does that zuckerburg cat. but ur totally off base and your movie analogy sucks, the content on the site is self created, not produced by a company and sold to consumers. Jr said it best, flashy title, no depth. your a pretty shoddy writer and your carging idea is idiotic
Really?
Jill,
if you think FB has no money – how do you think Zuck could donate cash at the rate of $100M?
Disclaimer: I dislike FB too.
Patrick,
I didn’t say FB didn’t have any money. There is plenty of it going down the drain. I just said they are worthless. Worthless to any future investors who will not do very well with a public stock.
Also, the $100 million gift to Newark schools was giving in Facebook stock. They are a private company and only have “promised stock” and Zuckerberg said there are no plans for an IPO – so how long do the kids need to wait for that $100 million?
Jill,
Your comments are accurate and 100% ‘on the money’. This is a fad (albeit a VERY large one) that doesn’t truly offer any potential investors any enticement to purchase. There will always be people who stay active in the online social scene, but like MySpace, they tend to move on to the latest & greatest when bored. Investors know this and require something a bit more tangible than billions of un-viewed ads that only tend to annoy visitors who are on the site for social reasons, not for potential purchases. I liken this to door to door salespeople. I’m in the mood to shop when I’m at the mall and in a position to buy something, not when I’m warm and cozy in my footed jammies without a thought of making a purchase on a product that doesn’t interest me in the slightest.
BTW – your descriptors of many typical Facebook users and their online experiences could not be any more accurate! Love it…
Very insightful post Jill. Bo, you are spot-on with your opinions.
That Facebook are not going for an IPO right now is extremely telling. Any investment banker will tell you that NOW is the time, it makes no sense to wait unless there is a disclosure problem.
My money is on a load of media-supported hype and very dodgy books.
For a funny perspective on internet privacy see http://videos.ucentric.org
Jill,
I think Facebook has the potential to monetize their site without resorting to a fee for use. They are attempting to use their own Adsense as the primary way to make money, which does not work for them like it does for Google.
Their biggest issue with advertising is viewers on the site are not looking for a solution to an issue, like they are in a Google search. When someone does a Google search, they are asking a question and looking for an answer. If that answer is in the search terms or on the sidebar, it is an answer to the question. For Facebook ads to be fully effective, they must be highly contextual and provide the user some solution to a question they are not consciously asking. If one of their friends talks about a movie, an ad below the post that allows the user to buy a ticket to the movie at a local theater or rent it online would work. An ad on the side for the movie would not. It is all about context.
I personally find their site confusing and constantly in flux. I would like to be able to pull the feed into something like Google Buzz or Reader and converse with my friends through that mechanism. The social network that gets roles (not groups) and interoperability down will be here for the long-term. I think Facebook has the user base to both grow their company and make money. To do so, they need to find relevance both with companies and with day-to-day needs of their users (need to be share thoughts does not count). That and they need to buy out Zuckerberg.
Your blog is true, I have facebook recommend to my friends, and support you.
Hi, just found your site through TC. I couldn’t agree with you more. I have ~200 friends, about half of which never do anything on FB (post status updates, photos, etc.). Another quarter I only see in my newsfeed because they friend other people, so at least I know they are logging in. And most of the content comes from about 10 people. Many people will post stuff the first few days or weeks they are on FB and then you don’t hear from them.
However, I would venture to say this is an over-25 thing. Young people are using FB as a primary means of communication. It’s the rest of us who didn’t see our high school classmates for 10 years and suddenly found it interesting, then realize that everyone else’s lives really aren’t that interesting. 🙂 Whether the under-25s stick with FB remains to be seen.
How can any one make a comment like that?
Facebook isn’t going anywhere. Like ‘life’, facebbok is what you make of it.
http://siteanalytics.compete.com/google.com+facebook.com/
3.5B visits for FB in Sep.
3.2B visits for google in Sep.
hmmm….
Good point, M.
Here’s my point:
http://mediamemo.allthingsd.com/20101014/google-q3-beats-earnings-estimates/
Facebook earnings? Hmmmm….
That’s all fine and good but have you also seen facebook’s ledger to compare? Since they aren’t public, you aren’t going to see these numbers the same way google shares them with quarterly earnings press releases. All I know is that 90% of the people who conduct a search on google pay no attention to the ads on the right and the top of the page. Does google care? Hardly. Should FB care if anyone clicks on their ads either? I’d have to say no. They still get paid regardless of click-thru rate. And if 10% of 3.5B is better than 10% of 3.2B, I’d probably take my ad revenue to FB instead of google these days.
Besides, like everyone else said– the minute they charge even .01 for regular users, people will be on to the next one and FB will be doomed.
finally someone has the guts to say it.
i am registered on facebook but don’t use it for anything. even my status updates are seen by me alone (meaning i don’t write any).
when i have the time ill delete all my old info and then it’ll just be like my abandoned friendster account, my abandoned myspace account, my abandoned aim account, my abandoned gchat account, my abandoned digg account.
nothing is eternal on the web. except the web.