facebook's missed revenue

March 4, 2009 ·

today facebook revamped their fan pages, the promise being they will be more socially integrated. when fist launched, the fan pages were promised to be social and bring companies and brands more into the fold of people's networks where the sponsored groups stood outside. well that didn't really happen and they are evolving again to try and fulfill that promise.

this time they got it right. but their approach is foolish and will likely end up ruining the space.

this move, while a great opportunity for brands and companies, is another in a string of missteps and bad plays by facebook. let's set it up. facebook, while experiencing tremendous growth, is struggling to make money. a recent lawsuit against them revealed that their valuation has been significantly downgraded from what was previously thought and what microsoft bought a 1% stake in. bill and ballmer can't be very happy. facebook's struggles are around monetizing the ecosystem they've created and the economy is aggravating the situation as advertisers are vacillating to spend advertising dollars.

so what's the problem with the new fan pages? well, facebook again missed a huge opportunity to add revenue streams and make their business viable as a free, ad-supported platform. this isn't the first time they've stumbled in actually bringing in money and not just bleeding it.

remember applications? yeah, no one really uses them anymore. the opportunity they blew then was not charging developers and companies a fee for developing and listing them. instead, they opened it up to everyone and that lead to their demise. they became trite spam engines that people stopped using after their initial glow wore off. after the last site design overhaul, they were relegated to a place of far diminished presence and importance. i don't lay blame on the developers for creating crappy apps, but facebook for opening the floodgates and allowing crappy apps to proliferate. they needed to be the gatekeepers to ensure quality control and real value was there for users. without a vested interest (ie. revenue stream) they had no reason to protect the space and as such it was ruined.

then there's the ads themselves, the only revenue stream they have. they aren't making any strides to make those much more compelling or interesting. i mean, it's a tiny static picture and 135 characters. not very interesting or compelling. they were okay when they were in the news-feed, but are now relegated off to the side where they can be ignored much easier. they would argue their engagement ads are the answer, but those still live in a place not many people care about. want proof, look at declining CTR and CPMs. also the ads that appear on your profile page and elsewhere are very often of poor quality and carry messages that are little more than spam companies.

facebook connect could probably be a pay model as well, but they missed out on that too. and while we're on missteps, let's also mention their most recent debacle around their terms of service.

that brings us to the new facebook fan pages. what facebook has done is make these look and act exactly like a person's profile. a fan page can now do all the things we do and have those actions be visible to the fans in their news-feed. that's a powerful proposition. brands and companies now fully integrated into their fans social network.

it's ripe for abuse. brands need to be very conscious of how they use these new communication tools. it'll be very easy to over-use them and spam the fans. and it's open to everyone again to do as much as they want.

how could this be averted so the entire facebook ecosystem doesn't become infested with overzealous brands turning people off from even logging on? well a pay model of course. this would have the side effect of actually bringing in money to the company.

i'm thinking first a pay to play system where there is a yearly fee for companies to create fan pages. something in the neighborhood of $50K to $100K. this is fairly nominal for any company to enter the space which provides them with such a robust offering to communicate with their consumers and most ardent followers. it also serves to weed out those who would likely abuse it.

second, to protect the space from over-use and ensure that the people who are there aren't spammed by the brands and companies they are fans of. the revenue model is a pay-per-interaction fee. so every post, or photo added, or comment made, anything really, comes at some kind of fee so companies are smarter about using them.

we could try and pass on the operating expense to the users and make it a pay model, but we've all been trained to expect to use facebook for free. so it will be hard to make that change. so it falls on an ad supported model or more precisely an advertiser supported model.

i'm just fascinated that facebook can continue to stumble through their operations like this. mark zuckerberg is a smart guy, but he is not a smart businessman. he's not proving to be good at making smart moves to make his company viable. i'll be waiting to see how companies use this new space and how facebook could have to backtrack because of abuse.




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