As the dawn of Facebook as a publicly-traded company breaks, a few thoughts amidst all the hype.
It’s the beginning of a whole new chapter for Facebook, and I’m not so sure that their road will be as smooth as some have predicted. Robert Scoble, for example, thinks Facebook could be a trillion dollar company in five years.
Well, it could happen. But for Facebook to continue that kind of trajectory, they’re going to need to sustain a huge amount of growth. There’s only a few options that will get them there at that kind of scale. The most obvious are either successfully ramping up their number of users, or successfully ramping up revenue per user.
New markets, and loads of new users in those markets, are possible. China’s problematic, but India is certainly in play, as well as plenty of other nations. Can one social network can serve the needs and interests of so many different cultures? I have my doubts, but it could happen if Facebook invests enough brainpower into internationalization and localization of their site. (Hint: content translation is the start, not the end, of that journey).
If they can’t grow revenue enough through new members, then there’s always the path of extracting more revenue from the userbase. Which means either more advertising or finding things that users are going to be willing to pay Facebook for. This is where things get more problematic. For one thing, there’s only so much advertising users are willing to put up with. And while I’m sure Facebook would love to do more with Facebook Credits, to date they haven’t had much success on that front.
And there’s one other thing to consider when it comes to advertising. Competition. Facebook isn’t the only game in town when it comes to digital dollars. Google is right up there as well.
Advertisers now have more choices for where to direct their digital dollars – which means Facebook (and Google for that matter) will have to do more work to get and keep those advertisers. The news that GM is dropping all Facebook advertising is a clear sign that they are not going to be able to just sit back and collect cash.
It’s great for those of us in marketing. Not so great for Google and Facebook’s profit margins.
And this is where Google has an advantage over Facebook. Advertising is their cash cow, but they have had time to grow and diversify in ways that Facebook hasn’t. As big a success as Facebook is, they’re much more of a one-trick pony than Google.
Facebook is going to have a huge IPO and a great run in the near term, no question about it. But there’s still a long road before them, and no guarantees. Remember that AOL was once valued at $160+ billion. Where it is today?