As Collis has said, “Sessions of the Hypothetical CEO are going to become a regular post here on The Netsetter so our little band of startup junkies can get to know each other. So even if you are normally a comment lurker, I highly encourage you to join in, throw some opinions around, even if they are wild, silly or daft ideas!”

Today’s Hypothetical: What Would You Do if You Were in Charge of Facebook?

Facebook has been posting losses for years. Only in September 2009 did it reportedly turn cash flow positive. Cash flow positive, however, doesn’t mean profitable, and with one of the largest userbases in the world, revenue from income streams such as advertising expand with use of the site—in other words, the more you make from ads, the more you’re spending on bandwidth.

Zuckerberg, Facebook’s non-hypothetical CEO, once said, “I don’t think social networks can be monetized in the same way that search did… In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.”

It’s great for the company that they’re finally making enough money to stop posting losses, but their methods of monetization are only barely covering costs. As a hypothetical CEO with three years to go before the focus of the company becomes profit-generating, what ideas would you consider implementing to make money?

My Answer

I certainly don’t pretend to know how to solve Facebook’s profitability problems, but I do have some ideas that the company could try.

Subscriptions for business users — Many people would typically look to Facebook’s huge installed userbase as a source of subscription income, but I doubt many regular people—myself included—would pay for a social networking profile. Your next best bet is to look to the people who want to access that installed userbase. A certain number of users are resistant to having business in their social networking space, even businesses they believe in—I was hesitant about following the very pages of sites I run, and I’m quite passionate about those sites. But there is a certain percentage of Facebook users who are quite open to interacting with businesses on Facebook and if, as a service, you’re going to facilitate this connection between the customer and the business, you may as well get paid for it. After all, you pay to advertise on the web, to advertise on television and radio, and this is really just an advanced amalgamation of advertising and public relations.

As the hypothetical CEO of Facebook I’d implement subscriptions for business to take advantage of the Pages feature and tier the subscriptions. You could base the tiers on the entity’s legal status (non-profit, corporation, and so on) and the number of fans they’ve attracted. Small businesses won’t have to pay more than the service is worth to them if they don’t have many fans, and the burden is shouldered by those with more substantial coffers, and thus in most cases, more substantial needs (such as support for thousands of fans rather than thirty). Given the marketing budgets of many large companies, top-tier enterprise subscriptions could bring in thousands or tens of thousands of dollars per month per entity.

One issue that could make this a bit messy is policing the difference between pages that regular people start and those that businesses start. My idea is that regular people can still start pages for their creative endeavors for free—perhaps they’re uni students in a band—but they can then purchase upgrades to their Page. The default Page may come with the option for a band to upload three 128kbps songs but you can pay to add high-quality audio and more tracks, or upload video. Should one of these creative hobbies turn into a business—say a band is signed to a record label or registers themselves as a business and starts declaring income—the Page will need to be put on a business plan. There’s no way to 100% ensure that people are doing the right thing, and like many things in life, the fear of being caught and sued will have to do.

Microtransactions — I said earlier that I doubted people would be willing to pay for their Facebook accounts, but microtransactions is a whole different thing. This is something that’s becoming popular in the online gaming industry. Asian MMOs have been using microtransactions for quite some time, and now Western gamers are starting to warm up to the idea. For an example, when CCP announced DUST 514, an FPS MMO for the console, people wondered how the company would make recurring income given that gamers don’t want to pay the monthly Xbox Live Gold fee and an additional monthly subscription for the game. It was soon revealed that instead of a subscription, the game would use microtransactions. You can play for free (aside from the initial purchase cost and the Xbox Live subscription) if you want, but if you want to upgrade your weaponry or get access to a certain kind of vehicle, you’ll need to purchase the item for your account.

The idea is that the cost is so small that it’s barely noticeable, and users don’t mind paying money for something they normally wouldn’t.

There are plenty of very popular applications on Facebook that revolve around the premise of giving items to other people, and many that are games. A few of these implement a microtransactions system already, though Facebook themselves don’t provide the infrastructure for this. I believe there’s a certain set of users that would be more than happy to pay 50 cents to give their grandmother’s milkman a worthless digital fedora hat, or buy upgrades in a Facebook game. I’m sure there are also more serious applications for microtransactions without turning Facebook into a paysite.

Facebook could either implement a microtransaction system that developers can sign up for on a split revenue share plan, or simply include microtransaction purchases in features and apps they develop themselves. The former option would give them the most scalability and pervasiveness, and I’m sure would be quite popular among developers who don’t want to have to build a microtransaction system for themselves.

What Would YOU Do?

If you were put in the hot seat at Facebook, what would you do to start earning some serious income? Let us know in the comments.

If you don’t have any ideas of your own, you can always tell us why you think the ideas presented will or will not work!

Today’s Hypothetical:

What Would YOU Do If You Were In Charge of YouTube?

Background
It wasn’t so long ago that YouTube stunned the world when it got picked up by Google for a wallet busting $1.65B. At the time it looked like the book had been shut on the seemingly endless speculation as to how the startup would make money and cover its mammoth bandwidth bills.

Three years on and not only is the speculation back but the numbers have gotten colossal. According to a Credit Suisse analyst YouTube is on track to post a $470m loss in 2009. Yes, that’s right – close to half a BILLION dollars in losses.

Losses are OK as long as there is light at the end of the tunnel. But the lack of revenue is not from lack of effort. Google has been experimenting heavily with different monetization efforts but it seems advertisers aren’t keen to have their message running alongside the infamously dubious content often served up on Google’s video showpiece.

BusinessInsider recently ran a great piece analysing why the chips are out of YouTube’s favour. According to the math, YouTube would have to achieve $9.48 CPM on their content to make it work with their extraordinary bandwidth bills of some $700m a year. Since CPMs for user generated content are usually measured in the sub-dollar mark this seems like a hard target to hit. Competitor Hulu.com claims to hit $30 CPM but given the nature of their content (straight from the major networks) it’s chalk and cheese when compared to the mostly amateur filled YouTube.

Things look so bleak that Time Magazine recently declared YouTube to be one of the ten biggest tech failures of the last decade, an honor it shared with such notorious nosedives as Gateway, Vista and the Zune.

Of course it would be foolish to write off a company with pockets as deep and resources as great as Google’s. So I put it to you dear readers, what would YOU do if you were suddenly bequeathed the title of YouTube CEO?

My Answer

So here’s my answer to the question. I think there are two fronts that YouTube is suffering on. On the one hand it is spending too much in the form of storage and bandwidth and on the other it isn’t monetizing its content well enough. Sure the two are interlinked and solving one really well would solve the other. But in a situation like this it strikes me that the best action to take is to fight both and aim to get a cheaper product that makes more. So here are three things that I would pursue:

• Find a Way to Use P2P Technology to Stream Videos
  YouTube/Google is big enough that there probably aren’t many economies of scale left to be had with the current bandwidth model, at least not in the near future. So any solution to fight bandwidth costs is going to need significant innovation. When you think about it though there is one model of content transfer that DOES work well for enormous amounts of content, it’s called Peer to Peer and it’s what powers torrents! Of course torrents as they are now wouldn’t work, but with Google’s engineering prowess it seems there must be a way to change the way popular video content is streamed. Sure, I’m probably ignoring every major technical hurdle in the book and happily admit to not knowing anything about how p2p or Flash video players work, but it *seems* like it should be possible somehow. In fact after a little digging, I discovered that NewTeeVee ran a story last year about precisely this possibility eventuating.
• Focus on Acquiring More Premium Content – Music Videos!
  Hulu have proven that premium video content online can pay off. The question is how to get more of it onto YouTube. One particularly popular form of premium content that YouTube could dominate (in fact they already do well with these) is music videos. Despite the fact that music videos are strictly speaking promotional content in themselves, they should still serve as content worth advertising next to. I’m sure there must be other types of premium content that don’t fit into the Hulu model that YouTube could monopolize also.
• Build in a Pay-Per-View Section
  Cable has proven that Pay-Per-View works, so why not create a facility for serving up this type of content on YouTube? Not only would some types of premium content provider be interested, but from a user-generated point of view there is one definite field of content where people are willing to pay to watch – that is educational. When it comes to quality How-To videos, where the content is worthwhile people will pay small increments to watch, I know this because Tuts+ charges for exactly this type of content. So why not create a micro-payment based pay-per-view that charges say 10 cents to watch a video and puts a share back in the customer’s wallet?

What Would YOU Do?

So that’s my 2 cents. Now over to you! Comment in your brilliant YouTube strategy, or let me know what you think of my three pronged strategy! Will YouTube be monetizable on its current course? Was YouTube a smart move for Google? How can they stem their epic losses?

Sessions of the Hypothetical CEO are going to become a regular post here on The Netsetter so our little band of startup junkies can get to know each other. So even if you are normally a comment lurker, I highly encourage you to join in, throw some opinions around, even if they are wild, silly or daft ideas!

Today’s Hypothetical:

What Would YOU Do If You Were In Charge of Twitter?

Background
Not a day goes by that I don’t see a questioning of Twitter’s monetization strategy – or more precisely lack of one – in the tech media. Pundits have floated the profitability of selling paid accounts, spots on the recommended list, and focusing on real-time search to sell ads. After a recent $35m funding round, Twitter has taken enough capital that they no doubt have enough to burn through for some time to come. But assuming they aren’t shooting for acquisition, and they continue growing, then they’re going to do something reasonably soon. The question is … what?

My Answer

Personally I think that Twitter’s opportunities are only growing with time. It’s hitting a big hockey-stick in traffic which means the numbers are flying upwards. Keeping this trend going is vital because monetization will only get easier as the market expands and Twitter cements its spot at the top. But to stay on top of the burn-rate Twitter should do something, I think it could try these two strategies:

• License Search to GooglePundits have been heralding the brilliance of real time search and I think they are right, it’s pretty cool. And it’s something Google needs to get in on to remain the search leader. That means sooner or later they will find a way to index either Twitter and other messaging services, OR put together their own (possibly open) framework and service. I think Twitter should try to cut a deal with them to let Google use Twitter technology to provide this service to its userbase, and monetize it how it sees fit. In return a generous license fee would keep Twitter in the money while it expands and it would potentially stop a competing product from entering the market. The drawback is the long term ramifications, and that partially depends on who controls the underlying data.
• Introduce Groups and Fee-based Closed Groups for Business“Twitter for Business” is getting bigger. Services like Yammer and Presently are taking advantage of the fact that using Twitter for closed groups is at best, difficult. Adding group functionality is something people generally want, and adding fee-based closed groups would mean taking the business market and generating revenue out of it. After all given the choice, I’d much prefer to have one Twitter account and use it sometimes for public messaging, and other times for private business messaging. At Envato we’ve been looking at using services like Yammer, but it’s one more account and service to use and that’s just painful.

I think business applications could be a strong business model for Twitter, while search licensing would give it the revenues to sustain growth. And that’s what I would do if someone were to magically bequeath the CEO title on me tomorrow!

What Would YOU Do?

Of course nobody other than Twitter’s actual CEO knows all the particular challenges, numbers and pressures of the job, but for our purposes – who cares! You’ve seen my answer, now I invite you to jot down your own thoughts in the comments, tear my strategy up or give your own! Does Twitter really need to worry about making money? Are there opportunities in business accounts or services? Is advertising the path to take?

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