As Facebook sets up to go public in the coming weeks/months (speculation abound) an interesting philosophical conundrum has been created. Facebook by most recent estimates is valued at $9.5billion (with a B) and has 350 million users. What about Facebook exactly is worth that much money? Simply put, you and I - more specifically - our demographics.
To potential advertisers, Facebook has become a gold mine. Leaving its predecessor Myspace behind as the canary in the shaft. As ads and chaos suffocated MySpace user pages, Facebook chose to take its time and keep it simple. The patience has paid off and the light at the end of the tunnel was $300million in revenues in 2008 (its first year in the black).
Facebook's growth has also been very calculated. When the social networking world was all about growth - Facebook enjoyed its life as an Ivy League secret society. It slowly opened its doors to the safety school crowd, and then eventually everyone. Four years later it managed 100 million active users. During the same period the trio that started MySpace was looking for buyers and found one in Fox Interactive Media. In 2005, MySpace sold for $580million. Since the deal, they have leveled off around 125 millions active users and have been sidetracked by several notable corporate growing pains (2006- Universal sues for copyright infringement, 2007- Buys Photobucket for $300million and then unloads it a few years later for $60million, 2009- Fires CEO and co-founder Chris Dewolfe, also announces it laying off 30% of workforce). [Info by CrunchBase]
The Boom
In August of 2008, Facebook hit 100-million users - not a modest number. But it was at this point that Zuckerman opened the floodgates. Deep breath...
150 million active users - January 2009
175 million active users - February 2009
200 million active users - April 2009
250 million active users - July 2009
300 million active users - September 2009
350 million active users - December 2009
Putting a little perspective to the numbers... If Facebook were a country, this month it slipped past the United States as the 3rd most populous country in the world. Are China and India next?
The Conundrum
This leads us to the current paradox. As Facebook prepares to go public, what does this mean for the user? With a valuation at $9.5billion and 350 million users, each of us who divulge our sex, birthday, location, favorite books and movies, and scores of other demographic variables are worth $27.14 each. Not a bad price for the digital Facebook you. As the anticipation of the IPO picks up steam, plenty of people will be hedging to get a slice of the "you and me" pie. Are we for sell though? Inherently, the only thing that gives Facebook or any social networking site value is its users. We are a fickle bunch too. We migrate at a whim, fearing heavy handed advertising. Even in its infancy, online social network history has taught us that advertisers need to stay creative if they want to utilize these tools. If Facebook does not learn the lessons of the past then it is also doomed to fail - no matter how big it has become.
So how does Facebook stay on top without looking like a corporate mouthpiece? It needs to continually develop an adaptable business model. One idea - let us buy ourselves back. It sounds crazy that you don't already have control of your digital self, but giving up your self to be apart of the club seems to be in the new digital social contract. I propose to Facebook execs to let us pay you the $27.14 and let us keep the profile information that makes us unique. I will admit that most people will never pay for Facebook and that is fine (The 1% rule is in effect). Fact of the matter is that the small amount of ads that are now rotating through your profile are not really that big of a hindrance and currently a good deal of them just point you to a fanpage of a product that exists in the brick or mortar world or a cause looking to attract attention. I am fine with seeing a few targeted ads to be able to keep up with friends and detag the embarrassing pics they put up of me.
The problem will arise when Facebook goes public. More shareholders, wanting larger returns on their investment will push Facebook to become the cash-cow it has the potential to become. The challenge will be for Facebook to continue to walk the fine line between being a social networking site and advertising medium. The weeks or months ahead should provide some interesting insights. I am looking forward to the IPO and buying my one share of the "you and me" pie.
