Posted by: Douglas Macmillan on April 9, 2009
The world’s largest social network sometimes gets flack from bloggers and industry pundits for not having much of a business model. It’s true that for now, Facebook is more focused on growing its number of users – which passed 200 million this week – than its bottom line. But the company is generating revenue from advertising, as chief operating officer Sheryl Sandberg pointed out in her talks with BusinessWeek editor-in-chief Stephen Adler on Apr. 7:
There is a lot of like, “What is the business? What is your business model?” And it’s a really simple answer, which is that our business is advertising. We’re not waiting to find our business, but we found it and it’s actually working very well.
As Adler pointed out in the interview, most estimates peg Facebook’s revenue at something between $1 and $2 per user annually – assuming $300 million (an unconfirmed figure) from 200 million people – which is quite small for a site with that many regular users, even for a free Web service. Rival social network MySpace, for example, is estimated to take in between $6 and $7 in ad revenues per user.
Sandberg is optimistic that the sales number will grow as more advertisers dream up fun ways to engage social networkers with their brand, and as advertising begins to roll out to international users. But is she so confident in ad profits piling up that she rules out other forms of revenue, such as charging fees for a premium membership to the site?
ADLER: Does Facebook plan on charging a membership fee? Over three-quarters of its users are going into a panic-induced assumption that this is true, even though there hasn't been talk of a membership fee from the business press or Facebook itself. So can you calm the panic?
SANDBERG: The answer is no, we are not planning on charging a basic fee for our basic services. Once again, that question stems from people thinking we're growing so quickly we're running out of money. We're growing really quickly, but we can finance that growth. We're not going to charge for our basic services.
Basic services? This term was not part of the question, and we haven’t heard it used by Facebook management in the past. Sandberg is a seasoned executive and a polished speaker – could she have been intentionally leaving a door open for the company to introduce some type of paid membership?
Company spokeswoman Brandee Barker only reiterates that Facebook “is a free service to users and we intend to keep it that way” – herself not eliminating the possibility of an additional paid service. Barker adds that the company may introduce new ways to charge brands for engaging with users, saying, “We certainly don’t want to rule out exploring other types of commercial services at some point.”
According to Jeremiah Owyang, senior analyst with Forrester Research who covers social media, a premium membership is an unlikely option for the company right now. “It’s hard to imagine that they would be able to create a premium version and be successful in the near future,” he says. Owyang believes Sandberg may have been referring to the small fees Facebook charges third-party developers to build on its platform, or the tiny amounts users pay to send each other virtual gifts.
That said, Owyang does not think “advertising is the primary route of revenue that they’ll pursue in the future.” He sees e-commerce, media services, and new branding tools as more promising paths to profitability for Facebook in the long term.
Are there any services you would pay Facebook a small fee for? What if you could have a vanity URL, or customize the look of your profile page? Let us know in the comments.