It’s the elephant in the room. Facebook is becoming the Google of the Social Network realm. There is hardly anyone I know who doesn’t have a profile and it is becoming more and more a part of our daily lives.
The question on a lot of people’s minds is how will Facebook make money? How did Microsoft value Facebook at 15 Billion Dollars as they took a 1.6% stake in the company all for a grand total of $240 Million?
Many along with Microsoft point to the advertising world where, like Google, they will launch ads not just according to keywords but with actual social data. They have all the information they need to give marketers an opportunity to hand pick the people who will be exposed to the ads. Currently on the new Facebook Ads Platform you can select and narrow your results by Sex, Age group, Education, Geography and common Interests.
This all sounds well and good, but the company’s annual sales do not justify the price tag (Facebook’s revenue reached $150 million in 2007 and rumors of $500 Million in 09 seem far fetched to me…). To top that, as an online retailer of wall decor I have had the pleasure of creating cool looking ads on the Facebook Ad platform and choosing my demographic and I have to tell you that for me it just doesn’t work. The cost per click is high and the quality of clicks is very low. People are not in the mood to be distracted by ads on Facebook!
Don’t get me wrong, I think that advertising is definitely the natural Facebook direction, but there is a completely new business model that is emerging on the Facebook horizon – the development of the Facebook page. From retailers to communities, local restaurants and Car Dealerships it seems that all have their own Facebook page.
What this gives us as retailers is invaluable. The Facebook platform is helping us create communities of our brand. What I find is that the people who join are real art lovers and fans of the company I work for. This is very powerful. My recommendation for anyone who is trying to create a Tribe around a brand (to quote Seth Godin) or to reach that allusive Tipping Point (to quote Mallcolm Gladwell), you need to develop your community on Facebook.
The challenge now for Facebook is to create revenues from these communities. I thought of a model that might be the Facebook direction. As brands become more instituted on the platform, the owner of the page will be given tools to communicate with the clients. These communications will be Facebook’s golden opportunity.
Every offer or communication will be counted and just as Google invented the Cost per Click model (Even though I think they stole the idea from Overture…) Facebook will create the Cost per Interaction model. Interactions will include the Facebook knowledge base of customer interactions which will allow full customization, automation of merchandizing and smart cross-sell messaging. By the use of these tools you will be able to locate opinion leaders among your fans and aspire to spread the word about your company and services.
So it seems that Facebook is turning to be quiet the Prisoner’s Dilemma: Facebook is going to have a lot of power in the online world very soon. If we decide to ignore it we will risk having our competitors gain market share.