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by Stephen Logan on 17th September 2009
One major issue facing social media platforms is how exactly to monetise their services. Subsisting on investor funding isn’t sustainable, so turning the corner and making a site profitable is a significant priority, but one which many struggle to achieve.
For many years YouTube was a cash cow for Google. Whilst it was widely used and hugely popular, the video sharing site just couldn’t find a way to turn that into hard currency. In fact two months ago to the day, in a strange piece of social media circularity, it was announced that Facebook had 250 million users whilst YouTube were on the verge of making profit. Today, Facebook has reached 300 million users and is itself the one who is ready to start funding itself.
Whilst the word ‘profit’ has been noticeably excluded from most statements, it has instead been exchanged for the far less committal phrase of ‘cash positive, it seems Facebook have now finally reached a point where business income (investments aside) is able to outstrip outgoings. But why has it taken this long to achieve this landmark?
Turning Promise into Profit
As Facebook is now the third most visited website in the world*, why can’t it match the success of those above or, for that matter, below them? In the last quarterly financial statement (reported, oddly enough on July 17th as well , in our post Recession Proof Google Continue to Post Tidy Profits), Google made $1.48bn. That’s 15% of the entire value (at least when Russian firm Digital Sky Technologies splashed the cash back in May) of Facebook in three months of trading. Whilst Google may be leagues ahead in terms of traffic, the blueprint for making money is not all that dissimilar – paid advertising.
Microsoft’s participation with Facebook has gone far deeper than simply providing capital. The software giant also manages the social media giant’s sponsored links, which is where, predominantly at least, the opportunity for profitability has arisen. But Facebook is an intuitive company, it hasn’t and won’t simply restrict its income on this one stream.
Twitter offers a distinctly oppositional model. They are one of the few social media sites to turn their back on advertising as a revenue stream (see Twitter Say No To Advertising) and whilst not turning any kind of profit, they are still looking at ways to pump money into the service. Premium options for tweets from most popular members in the Twitterverse, as well as commercial accounts seem like the most viable way to go cash positive with their increasingly popular service.
Facebook have seemingly bi-passed this predicament. With 300 million users now on board – a 20 per cent rise from this time in July – the potential for future growth, new monetising initiatives and mammoth profit margins have never seemed more plausible. However, this doesn’t mean that they can’t explore similar avenues. For example, if the storefronts, pioneered by companies like 1-800 Flowers and featured in our blog post ‘Setting up Shop on Facebook‘, take off, this could provide a whole new affiliate style revenue stream for the company. This in turn may spawn new initiatives too in the future.
As a website and a business, Facebook has been continually written off. Despite criticisms over leaked figures showing losses in 2007 and 2008 and questions over valuation and the continued rebuffing of offers from the likes of Yahoo! ($1bn) and Viacom ($750m), they have remained largely independent – Russian and Microsoft investment aside.
As a pre-cursor to this week’s financial revelations, we have the million dollar (more likely billion dollar) question as posed to Mark Zuckerberg – founder and owner of Facebook – by Time magazine in an interview back in July 2007 (yes, the 17th again as well for good measure):
TIME: Beyond Facebook’s exclusive advertising deal with Microsoft, which gives the software giant the right to sell ads on the site, what are some of your ideas about monetizing your 30 million users?
Zuckerberg: Advertising works most effectively when it’s in line with what people are already trying to do. And people are trying to communicate in a certain way on Facebook – they share information with their friends, they learn about what their friends are doing -so there’s really a whole new opportunity for a new type of advertising model within that. And I think we’ll see more in the next couple months or years on that.
Essentially this is exactly what has happened. More people are using Facebook, spending more hours and sharing more information all the time. This has given Facebook a unique insight into the lives and interest of people and is now allowing them to provide highly targeted advertising, not just the very general demographically based ads of yesteryear. This in turn has lead to the company becoming cash positive.
Just as YouTube have finally cracked that seemingly impossible social media solvency nut, so Facebook have followed suit. With more money at their disposal, they can now look to develop the services they offer and ensure that Facebook remains as relevant in the future as it is today. With storefront’s now opening and a new Facebook Lite in the offing, clearly the benefits of their explosive income growth are already being felt by businesses and users everywhere.
Stephen Logan is our Senior Content Marketer at Koozai. With four years experience writing exclusively for the search engine marketing industry, he has amassed a wealth of industry related knowledge. He will be breaking news stories and contributing compelling SEO related stories.