One of the things I'm amazed Facebook isn't doing is spending time trying to seriously cut their infrastructure costs. As far as I can tell, Google started investing really early in building out their own data centers with commodity machines that could give them scale on the cheap. Meanwhile, Facebook is still trying to cut deals to acquire more and more big iron. Facebook's growth could be their downfall if they don't figure out a way to make all these new users' photos and videos inexpensive to store.
Negative cash flow is still negative cash flow. I'm still waiting to see how/when/if Facebook rolls out an actual viable business model that allows them to sustain their operations profitably.
Apparently profit is simply no longer required as a measure of success. I've given up trying to understand this nonsense. Apparently burning VC money and hoping to either be bought or go public just trumps all business sense.
While outsiders kvetch, Facebook is locking up the mass market -- people who don't flitter to each new social network as it appears, people who may wind up using the same social network from their 20s to their 70s (!).
That's worth spending a few years of losses to achieve.
Amazon has an obvious business model; the case for grabbing as much of the market as they can makes much more sense for them. Facebook on the other hand doesn't. Who cares how many users you get if no one knows how to monetize them?
I understand they're hoping by the time they get all the market wrapped up that they'll figure something out; that doesn't make it any less stupid. There was a time VC's wouldn't talk to people without an exit strategy up front, this was for a damn good reason.
Facebook isn't the first social network, and it won't be the last, social networks are faddish. Fads fade.
Amazon's model wasn't obvious when they started. Would people choose to trust and prefer online ordering? Wait for delivery? Would prices plus delivery costs be competitive? Even Bezos probably had no idea how much they'd make by being a clearinghouse (and sometimes fulfillment-house) for others' sales.
Can you make money from mass audiences online? Yes; absolutely.
I have no reason to doubt (Facebook board member) Marc Andreesen's assessment, offered a few weeks ago on the Charlie Rose show, that Facebook could choose to be profitable at any time just by adopting more aggressive, typical web advertising. That they choose instead both user growth and a search for all-new advertising models is to their credit. Andreesen, the Facebook founders and executives, and their investors are not 'stupid' and just 'hoping' to 'figure something out'.
It's not at all clear to me that Facebook has anyone locked up. If there is a competing service, one that even figures out how to be profitable, there are a lot of ways it could win me over from Facebook. Heck, Facebook is sufficiently off-putting that my ceasing participation there is readily conceivable.
A new service wouldn't have to win you over. It'd have to win over the entire mass of non-technical people who have been arriving at Facebook in droves over the past 18 months.
For these people, Facebook is the first and only social network they've considered, synonymous with the category. They don't rush to try new things, and the number one benefit of any network is that it's where their existing friends are. Facebook is it.
It would be easier to get these people to switch from Google (synonymous with search to them) than Facebook, because individuals can switch by themselves with search. With Facebook, unless you get a bunch of friends to switch all at once, you can't even see the value of something new.
MySpace/OpenSocial is a disaster. A buddy of mine works as a consultant for Ask.com. He spends his days building Nascar trivia apps for Myspace. And Nascar gift apps.
Want to know why Ask.com has a Nascar (#96) and Google doesn't? Because Ask.com's "southern demographic" never discovered google/facebook as the bigger and better. Their own studies show that their primary internet usage is (1) Myspace and (2) Ask.com.
So aside from the fact that a majority of people who use Myspace equate it "the internet", and Facebook has a worldwide appeal, you're 100% correct.
Facebook is blowing by MySpace in usership, with users who've never tried MySpace.
MySpace had a great thing going with the music/culture/youth/extrovert demographic, but that's still a niche of experimenters who move between fads. Facebook is reaching people who never considered MySpace (if they were even aware of its existence outside jokes on TV). Housewives, middle-aged professionals, laborers, retirees, etc.
Yes, and every new user they add makes the cash flow just a little faster in the NEGATIVE direction. More users is more overhead, more storage, more bandwidth, etc.
Many of these new users are using Facebook basically as webpage builder and storage medium. They're not there to click ads and "interact" marketing-wise the way Facebook needs them too in order for those users to pay their own way through ads, etc.
The other thing that I think a lot of people are not paying enough attention to is the real trend-setting users. The "cool kids", the ones who built up the Facebook user community aren't generally very excited about having their parents and every housewife in the same "club" they are in.
My personal prediction is that Facebook WILL get stale. The "cool kids" will get sick of the non-cool people coming in, and the increasing trends in ads and attempts to monetize the system and they WILL go some place else. This basic trend dates all the way back to the days of Studio 54 and prior clubs.
Facebook is basically trying a business model that has been around forever and never really worked... "We lose money on each unit, but we make it up in VOLUME".
Some of us have seen this movie before, others haven't...
That Facebook will appear stodgy and lose the young crowd even as it conquers everyone else is one of their greatest risks.
One way they're combating it is to make sure everyone sees a different Facebook -- tuned for just your desired perspective. It could become number 1 in nursing homes and retirement communities without "cool kids" ever noticing that fact because there's no overlap of "feeds".
They may need to go further, though -- perhaps even launching a separate brand/subnetwork for HS/College/twentysomethings/etc. (It would draw on the full technology/membership base, but offer a clearly separate friend list and profile/persona -- moreso than the current visibility controls and filters.)
The market is still theirs to lose; they know the risks and have lots of options.
As the old saying goes, the market can remain irrational longer than you can remain solvent. Facebook does have to make money sometime, or it all comes to an end.
