In the past few months, Collis has hosted two games of Hypothetical CEO. We pick a company or situation, and you place yourself at the helm and form strategies to solve problems, which you then post for all to see in the comments. Our first rounds, looking at Twitter and YouTube, generated some excellent discussion.
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!
Instead of just thinking of single monetization tactics, I’d think ultra long term about their position and where they’d ideally be as a company. They want to “bring people together”, but there’s far more than just its potential as a social network.
One example that comes off the top of my mind is social commerce. eBay remains as the biggest marketplace of goods between people, and the two things plaguing them most are reputation and shipping. What if Facebook were to enter commerce? By being the most socially connected website on the internet, both issues can be solved better than any ‘commerce’ website ever can.
Imagine the possibilities: being able to purchase goods from friends of friends who live in the city next door. They have the potential to overtake craigslist in commerce because they already have incredible scale, and they solve the biggest problems that craigslist faced too.
And if this panned out, commerce will never be the same again. And Facebook would be ultra profitable, too.
Set up an ad network that uses information about who you are and who your friends are to run display ads for major marketing/branding campaigns. The idea is to create a Google Adsense kind of publisher network but for display ads (which big brands really want). And rather than just using content to decide which ads to put up, Facebook could design it’s product to also leverage demographic data about you and your social graph (somehow).
good ideas here. i think that charging for fan pages would be a great way to actually offer support for them. it shouldn’t be based around who’s declaring income though, if anything it has to be more directly quantifiable like the number of fans.
at the moment the big hook with the pages is they want you to buy ads though, so they kind of have this covered.
overall i think facebook is doing great things, especially when you look at their developer wiki. they really took a page from the google and yahoo books on that one.
Maybe this is implied in your idea for business users, but I think Facebook could add a lot of functionality that wouldn’t really bloat their existing application. In particular, most people use LinkedIn for business relationships and Facebook for personal purposes. Facebook should set out to change this. Here are the steps I think would be necessary:
Allow users to make a business version of their profile so that if they wanted to be “friends” with a business contact, they could show their professional side. As things are now, I’ll never befriend someone on Facebook if they could end up being important to my career.
Once that’s done, I think Facebook should aim to slowly take over another already established industry. If I had a professional profile and I could upload a resume, Facebook could be my go-to job searching location. When I’m looking for a job (and only when I’m looking for a job) I’d love for Facebook to automatically match me with potential employers and put possible matches in my news feed.
This is just an example of a more general strategy. There are a lot of sites right now that are more useful as more users join. Facebook already has a user base that no one can compete with, so they should be able to take over any number of different existing markets. If they could slowly incorporate new functionality that has already been proven to work on a smaller scale with other websites, they could finally leverage their 300 million users.
The real key to doing this would be to make sure that they don’t clutter up the existing site. If they ad job searching, apartment hunting, or anything else like that, it would need to be neatly tucked away so that everyone can keep using Facebook the way they do now.
I’d rename it to ashitloadofupdatesaboutstupidgamesandquizes.com
As the hypothetical CEO of Facebook, I would focus on using the social graph to help advertisers convert website visitors into buyers, subscribers, members etc.
Conversion is perhaps the one thing worth as much if not more than advertising to a publisher or business. Facebook is probably better placed than anyone to help with this.
I’ve written more on the specifics of how they might do this on my blog and I shouldn’t take up too much space here with those ideas. Besides, more than my specific ideas on how, it is the general notion of Facebook helping with conversion that I wish to convey. Others may in fact have better ideas than I on the how.
I would go for a subscription plan for users, where for a small monthly payment they can have more control over their profile, in terms of design, more of a myspace like control over it, and no ads on the site like deviantart. Next to that you could give them more powerful features. Another thing for them to do is to create some sort of Habbo hotel in to this payment plan. Or get their hands on companies like Zynga who create social games, and make social goods their income stream.
And they have 300+ million users, using an affiliate system from say Amazon, they could use their user base to make an effective e-commerce ecosystem in to their platform and make money of it I think.
Donation, could be a good idea too. As people are giving money to support wikipedia why not “Do you want to keep using Facebook ? Support us…”
I also completely agree with your other suggestions.
Jon
There are so many avenues that they can go to make profit. I think one direction they could go is look back at their roots. They started as a way for college students to keep in touch. They could expand on this by creating a learning management system like blackboard or moodle. Something they could charge subscriptions for. I talk a bit more about my thoughts on facebook as a lms here http://ow.ly/COjm
I like the idea of charging a subscription for business pages. That is really a necessity. Facebook is essentially granting businesses free advertising and I think they could really make some strong revenue from that. And as you said there could be tiers of prices for small businesses or startups. Then as you make more updates and get more going with more fans, you would have to increase your subscription because this is making the assumption that your business has grown etc.
I also think there are things they could charge regular users for. There are some people out there that upload their entire life in pictures to Facebook. They could implement a monthly photo upload limit and if you go over that pay an additional fee for an extra set of photo uploads. Same goes for videos. Not as many upload videos so 2-3 videos per month could be plausible. Any more and you could start charging 3 dollars per video or something.
Facebook will find the answer soon…I could see it happening. I don’t see Facebook being a fad like Xanga and things like that.
Cut and run. All the long time FB users I know are sick of all the crap and only visit occasionally to see what friends are up to. FB is still riding the initial user fad wave.
I think that when fb is going to charge money for uploading pictures or videos. the users of fb will go down. the idea with the subscription plan for business will not optimaly work. because now a days u can make a business profile for free nd why shouldnt a company use a free profile on facebook to promote their products. they can upload a video easily on youtube and attach it in facebook for free.
Facebook needs more tools for business members. For example, Involver has a lot of paid apps and services for Facebook pages. A lot of industry leaders pays for it. Envato does it too.
Facebook has everything to do it. A smart CEO, a lot of developers, marketing experts and millions of users bla bla. Facebook is huge but not dynamic.