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Facebook: the social monetization challenge
If Facebook were a country, it would be the 3rd biggest country in the world. With 900M active users it is hard to see how they cannot make money out of that. I believe their challenges are the lack of a more commercial product and the social nature of their main product.
Source:Trefis.comFB needs a product they can sell, according to BCG Matrix, a “star”. FB’s advertising business currently makes up 68.8% of their share price and is widely branded by the digital industry to have a low ROAS/ROI. However, FB touted an executive from Ben & Jerry’s Ice Cream in its roadshow video, who said that for every $1 the company invested in FB, it generated $3 in sales. That is impressive. That is nearly the same return generated by sport sponsorships. I believe this could be an anomaly. Either they gave a value to each “like” they received, or they have a very advanced tracking mechanism that links the offline activities such as product purchase and online activities such as brand awareness. From what I see, advertising is not going to be their cash “cow”. It might already be going in to old “dog” territory.
FB’s transactional and virtual goods business makes up 16.3% of their share price. I believe they already know that advertising (68.8%) cannot be their primary income. Having to continuously adapt in order to fend off competition, and having to compensate for the diminishing margin in advertising will directly impact on how innovative they can be. Consider Apple as an example, high margin, high innovation. FB continues to experiment with other growth areas to strengthen their business. The film rental service that launched last year and the recently launched mobile picture sharing app are good examples.
An increasing number of consumers are using FB on their smart phones and the exceptional growth in this area requires some swift action from FB. Acquiring Instagram was another step to capture mobile market share. However, if the plan is to generate cash by advertising more on apps and mobile sites, I would be very sceptical. My intuition tells me that will not work.
Source:Trefis.comUnlike LinkedIn, FB face a tougher challenge to monetize its 900M active users. Conversely, LinkedIn has brilliantly identified their core audience to generate a healthy income. Subscription-based profiles make 14.3% of their share price; recruitment and job postings 45%; and advertising and marketing another 28.5%. Personally, I believe LinkedIn shows more potential, a better spread and a much stronger business model compared to FB.
Can FB take a leaf out of LinkedIn’s model and build a plan to derive an income from their 900M users? Can they elevate social commerce to the next level which makes 4.7% of their share price? Can they extract more money from brands, per activity? Should they look at a completely separate area for growth? What about the “social phone” idea? “social education”? “social voting”?
It is important to note that all social ideas come with a tight margin and less of an opportunity to create an income. The Bottom line, however, is that FB needs a service or a product that will prompt consumers to put their hands into their pockets.
If FB continue to operate as a social platform by going public, its biggest challenge will be to manage the populous expectation that a platform -which has shown a phenomenal growth in followers and market reach- will undoubtedly become one of the most profitable businesses in the world. FB will have to manage the stakeholder demand to deliver high profit margins. To do so, they will either have to adopt a more commercial business model without cannibalising their social value or reposition their business. Repositioning their social business will be a high risk strategy and I would advise against it. My recommendation will be for FB to play to their strength which made them the 900M strong platform they are today. As a product created to benefit society, FB should continue to invest on the social platform to strengthen their value whilst looking at other commercial ventures for more profitability.
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Awesome community management
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VS Ramachandran on your mind
Okay, this talk is bloody fantastic!
I think I noticed Richard Branson in the crowd. (at the very end of the video). See, this is how they stay at the forefront of innovation. They research! -
No Facts? Can’t Manage…
When Mr Colin Matthews (Chief Executive, BAA) was asked about managing of the queues at the arrival hall before they reach the BA gate, he said…
“We can’t measure! You can’t manage something when you don’t have the facts!..!”
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Business Strategy Comes Last…
So, I was discussing the ANSOFF Matrix with my Strategy and Business Planning lecturer, Dr Chris Barnes at University of London. The conversation soon digressed to a more broader look at Strategy.
At some point he asked me, “Why do you think that modules like Strategy and Business Planning come at the end of management program?”
He looks at me over his spectacles probing me to answer. I gestured that I am not really sure.
“Well…You need to know what you are planning for -looks at his file-. How do you plan if you don’t know the business? Or you dont know what solutions you can apply Or you dont know how to analyse a situation? That is why we do Business and Strategy at the end. So you guys know to analyse things and apply models before starting to plan the future..”
I never thought of it that way …
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Michael Norton: How to buy happiness
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The True Cost of an iPhone
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Mikko Hypponen: Three types of online attack
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Ric Elias: 3 things I learned while my plane crashed
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