Everybody has a secret world inside of them. All of the people of the world, I mean everybody.
No matter how dull and boring they are on the outside, inside them they’ve all got unimaginable, magnificent, wonderful, stupid, amazing worlds.
Not just one world. Hundreds of them. Thousands maybe.
Neil Gaiman
“The Economist” has this week an interesting article about the value of Social Networks and big bubble “Facebook”. The authors claim:
There’s less to Facebook and other social networks than meets the eye.
At Dinner, an interesting discussion erupted between my classmates due to that article. “So, how does Facebook make its money?” - “How much is the company worth anyhow?” - “Can ads really earn that much money?” - “How will the Internet be in ten years?”
What we know about Facebook
Let’s get the facts straight: Facebook has a little bit more than 30 million unique visitors per month. It has an estimated turn-around between US-$ 100-150 million per year. More than 5000 external widgets are running on Facebook.
About 75% of Facebook users are not in College anymore, but 60% have college education. The age-group between 15-24 is the biggest one followed, by 25-34, but the age group of 35+ is growing rapidly. A detailed discussion of Facebook demographics can be found at Beth Kanters blog-post.
Yahoo offered 750 million US-$ in 2006. Some claim it could be worth 100 billion US-Dollars See Jason McCabe Calacanis for a detailed discussion..
Facebook not suited for marketing?
The ability of journalists and bloggers to predict the future is clearly limited. Om Malik (Gigaom) for instance wrote in March 2006:
From what I have heard is that the company is considering opening up its network to the non-core audience, aka young people who are not in colleges etc. I think doing so would be disastrous for the company.
The disaster has not struck yet, has it? The Economist points to two innovations that Facebook has made:
Facebook has made two genuine breakthroughs. The first was its decision to let outsiders write programs and keep all the advertising revenues these might earn. […] Facebook’s second masterstroke is its “mini-feed”, an event stream on user pages that keeps users abreast of what their friends are doing—uploading photos, adding a widget and so on.
Apparently, Facebook knows how to make users stick to its platform. Does that translate into big money right away? Certainly not. Andreas Göldi calculates turn-around through ads per unique visitor:
- Facebook: $4.45
- MySpace: $11.70
- CNET: $12.33
- Yahoo: $49.17
- eBay: $84.94
- Google: $104.48
- Amazon: $226.14
He says that comparing Google and Facebook is like comparing Apples and Oranges. In his view, companies like Google or Amazon are much closer to the intention of users to make financial transactions. The chart on the right explains his reasoing. Horizontal axis being Transaction-Probality, vertical axis being Target-Group-Focus, he places several online products inside these two dimensions with Google Ads ranking high and Social Networks ranking low on both scales.
The Economist uses a similar strand of reasoning:
On Google, advertisements are valued; on Facebook they are an annoyance that users ignore.
The big online-sellers are already on Facebook.
Without disputing this fact, but what should keep Ebay or Amazon to write small widgets for Facebook where people can monitor their Ebay-sales or recommend and order books through Facebook? What should keep Facebook from entering strategic coalitions with these large online companies to send traffic both ways? What better marketing engine than a vibrating social network can be found for Online-Sellers?
What should keep them? In fact, they already have done it. Ebay has its marketplace turned into a widget and some features of Amazon (like rating your book) can be found as widgets already. If Ivy-League schools are offering Facebook-Widget-Classes, then surely something is happening.
Are smaller networks better?
The Economist also warms up the “smaller-is-beautiful”-legend. They write:
But unlike other networks, social networks lose value once they go beyond a certain size. […] Already, social networks such as “aSmallWorld”, an exclusive site for the rich and famous, are proliferating. Such networks recognise that people want to hobnob with a chosen few, not to be spammed by random friend-requests.
This is true to some extent that social networks lose its attractiveness over time. But so far no social network has grown to big. Social networks became inattractive because their development was not up-to-date.
If small social networks are so fantastic, how come that from the more than 100 Social Networks in Germany only few are really sucessful?
Maybe targeting a small group and supplying only one nice idea is not enough to initiate massive growth. Social networks grow according to dynamics that have nothing to do with functionality or user-group-targeting.
Social networks grow if the right users discover the network at the right time - as tautological as this statement sounds, it is probably a more accurate description of social networks than what the Economist delivered. A necessarily incomplete but fairly detailed history of social networks was written by Danah Boyd.
People prefer social networks that give them a sense of their real-life community. But that does not mean that the network itself needs be small and specialized - or exclusive.
Exclusivity gets people to sign on, but not use a website frequently. Only if exclusivity meets added-social-value, then people come back.
There is still time until the bubble bursts.
None of this disputes that the hyped-up value of Facebook could be another big Ponzi-scheme with the last byer making the big loss. Are we as close to the bubble, as the Economist portrays it? In my eyes this is higly dubitable.
Mille grazie to Robert and Laberena for providing the links to some of these pages.
