18 May The Future Business Model of Facebook
The one thing Facebook has not figured out yet is how to utilize their fabulous product to make the most money, consistently and on an ongoing basis – i.e. finding the right business model. A really intriguing topic to write my very first blog about, because, in my opinion, finding the right business model for Facebook cannot be accomplished using conventional thinking, like, solely looking at Google and their search engine ad revenue, for example. Facebook is unique, so you need to find unique solutions. Actually, there is not one single best business model for this site, rather a multitude of potential revenue streams from very different sources. It is not only “how do we generate revenue”, but equally important “when do we start with which one”. This might sound strange now, but it will get clear, when reading this. Summarized, it is basically taking your assets and what made you successful in the first place and finding new ways to use them effectively.
Business Network / Business Profile
I thinking about this since beginning of February. Wouldn’t it be great, if you’d only need to login once and have your private and professional network in one view, although strictly separated from each other, depending on your settings? Wouldn’t it also be great for companies to have a business network with about 7 times more users than LinkedIn, that can offer people having every kind of skills and experience imaginable as well as offering any kind of services and products among their 500 million users? Wouldn’t it be great for Facebook to be able to get into companies blocking the site so far, generating new streams of ad and other revenue from recruitment companies and others? But most importantly, Business Network market leaders LinkedIn and Xing charge their users, meaning Facebook would have an absolute legitimate case to do so as well for their business network users. This means, that the crucial, and psychological, hurdle of charging end-users can be overcome via a sideway, so to speak, without having to expect a massive backlash or a mass exodus of users. Of course, they can only start to charge the active business network users, but when the door is open once…needless to say, this has the highest potential impact on the bottom line of Facebook.
All this would happen, if Facebook offered a Business Network, too. This is not even a huge undertaking for them really, just leveraging their existing functionality.
It can be set-up rather easily via automatic transfer of the existing (fitting) data of the user profiles into their new professional profiles, giving the users the choice to opt-in into this service and let them enter more business-related data to be able to activate their professional profile (which also means more key data available within Facebook). The professional profile can be, e.g. on a separate tab right next to the private one or just as another wall and info page next to the main profile, allowing for it to be within the Facebook site, but with the possibility to completely block the private section, when accessed from certain locations, while also allowing the user to keep both profiles and their connections separated via respective privacy settings. To grow rapidly, at least initially the service should be offered for free. Ads can be displayed to help offset part of the launching and initial running costs. Existing Facebook functionality should be incorporated, examples are, the news feed with real-time updates, posting pictures (e.g. from corporate events), the Like button, the option to easily post relevant news, etc., enabling the user to do the same things they like to do on the social network also in a business environment and in a simple and already known way. This would make the Facebook Business Network that much more alive than the mostly static existing ones, allowing users to be active or passive, enjoying ever-changing new content, keeping them on the site, just like it’s happening on the current social network. At the same time, the previously mentioned benefits for Facebook are enormous, while the development time and costs for this are comparatively small as already proven and existing layout and functionality can be used. In my opinion, if set up properly, the other existing professional networks will be marginalized within about 9-12 months after the launch (depending on the roll-out plan), just like the other existing social networks.
In short, just take what successfully works, put it in a business context and reap the huge rewards.
A job market, integrated with the business net as well as the rest of the site could be the next step. Same procedure as above, at the push of a button, the relevant data from the other profiles, private and professional gets transferred to a job search profile(again, if agreed to by the user) and additional data is added by the users to fill out the respective profile, alternatively, if a business network already exists the professional profile can also act as the job search profile, saving the users valuable time and enabling them to easily get out on the job market, without needing to fill out a long new form, updating their CVs, etc.. The first option, a new profile, would enable Facebook to gather more data and place more ads; the second one keeps the number of profiles from expanding, meaning less complexity and maintenance. Why Monster.com – Facebook has the equivalent of the third largest country in the world as talent base, available at the push of a button. This enables Facebook to pretty quickly become a major player selling job ads and e.g. earning additional money from HR companies for special search functions, etc. and also generating more ad money with the existing ads on the side of the screen.
Facebook has a marketplace actually, but it’s safe to say, that it never took off in the way other parts of the site did. So I suggest a relaunch. Advantages are that no additional login is needed and the pretty convenient account access, also via Facebook’s pretty well done mobile apps. Now the business network profile of (at least) the sellers should be integrated with the marketplace with the users accepting that Facebook can use their data for security reasons (e.g. to eliminate users with fake profiles from the start) while having them also add more data to be able to act as a seller (more key data within Facebook). This wealth of data enables Facebook to have a sufficiently lower fraud rate and even better fitting custom offerings for every single user than e.g. Ebay, huge competitive advantages. Special promotions for goods on Facebook will also make it easier for many users to accept letting Facebook use their existing data strictly for security reasons.
Now some examples for things currently totally out of Facebook’s scope,
Why they haven’t done this already is beyond me. It’s a great brand, simple logo, people like it. White and blue T-shirts, each with the alternatively colored Facebook logo, and matching caps, maybe some sweaters, that’s enough for starters. Then advertise these products via their ad system, which simultaneously generates a great case study to show to ad buying prospects. For sure not their potentially largest income stream, but pretty quick to launch and profitable nevertheless, with options galore, like the ability to build the biggest clothing online store on the web via own offerings and the integration of other brands and retailers in an open way, similar to what Facebook has already done with applications on their site (use what works). Tailor-made offers (no pun intended) for 500 million users every time they log in, is quite a powerful thing here, too. Even opening Facebook brick & mortar stores in the future could be a viable option, also not necessarily limited to clothing.
Comprehensive Event & Event pictures database
Neat little features with great user benefits while pretty quick and rather inexpensive to launch are always fun. A comprehensive event database where every event manager will enter their own events and every Facebook user can search the listed events, concerts, etc. in his or any other region. If you travel abroad, for example, you know where to look for events and e.g. can also contact the event management or other Facebook users attending an event you are interested in easily and immediately with tools you are already familiar with. Additionally, the option to link pictures to the respective events should be implemented. Again, integrating all the successful Facebook features e.g. allowing people to tag themselves or be tagged (for privacy reasons, only the person her-/himself can tag themselves if they want; to tag others, the user needs to give permission to be tagged in this more public environment), Comment, Like button, etc., also allowing users to upload their own pictures from the events and link them to the event (when authorized by the event manager), makes it that much more interesting and definitely increases the number of user interactions on Facebook. Needless to say, all this is non- existent with the usual event/photo sites, where you often need to register, again, then get flooded with ads and only have partial overview over one region, and basically none of the other options described above. A centralized database is so much more convenient. By using already existing functionality for a new application, Facebook will save resources in developing these features while gaining speed to launch them (a familiar theme by now). Existing sites will have no chance against a comprehensive, worldwide, but localized database within the offering of a 500 million user juggernaut. This is certainly not difficult to set up from a technical standpoint and will render the existing party sites meaningless within about 6 months after launch in the respective regions. Facebook would gain even more new users, more user-generated content and user interaction as well as more ad revenue (e.g. the ad money flowing to the party sites will go to Facebook) out of this.
Facebook itself could offer a variation of a microcredit to its users (a microcredit is a very small loan originally designed for impoverished people in developing countries to engage in self-employment projects that allow them to generate an income – http://en.wikipedia.org/wiki/Microcredit ). Where’s the context, you will ask. The data of the users of Facebook is a credit rating specialist’s dream as certain non-financial data is, when available, also highly valuable in today’s loan approval process. No bank has anything close to this in terms of private data. To actually being able to use this data, Facebook would ask the applicants to sign a document that his Facebook user data can be used in the loan approval process. You can bet, somebody who wants money, will accept this. (Also, the applicants will be asked to provide their full financial information, of course, as this is currently not available on Facebook.) In this scenario, a credit officer will really have the total picture. This is an invaluable advantage in being able to calculate if an applicant should be denied or if someone will be able to pay back. This would result in a lower credit default rate for the Facebook loans, meaning in turn higher profitability, but also lower interest rates for the recipients of the loans, as Facebook would need to price less into the issued loans for the expected defaults than normal banks. Facebook needs some experienced banking people for this, get a license (not as difficult as it sounds nowadays, I guess the government will be happy, if anybody else wants to offer quality loans), set up a process and the respective software or alternatively, have one bank or a consortium of banks in the background for this and only act as router (first option earns much more money, latter one can be set up more easily and bears less risks). In any case, the first step would then be to start a very small test balloon (they would be totally overrun, if they would even offer this “only” in their home state, let alone Facebook-wide). After some time gaining experience with the process, they can think about offering higher amounts and potentially becoming quite some competition to regular banks (again, think the potential customer base of 500 million+), while, importantly, also doing something good in supporting their users with more affordable loans. Later on, they could even expand to offer more banking functions, like an online account, e-brokerage…
Peer-to-Peer Lending platform
They could also offer a Peer-to-Peer lending platform, where users lend money to other users, like e.g. Zopa or Prosper, which would soon thereafter become the biggest one on the web, of course. The process would be the same as with microcredits, whoever wants a loan, needs to share his data with Facebook, so it can be checked, if the applicants qualify, which is what the P-to-P platforms do as a service for the lenders, charging a small fee for it (another revenue stream for Facebook). The advantages to other platforms are the same as to banks in regards to microcredits, the quantity and quality of the data at hand. Another advantage here would be that the number of social interactions between the users increases as lenders and takers interact quite a lot on these platforms and a rather safe guess is that they would do even more so on the familiar Facebook. This is also potentially a good way of gaining experience before offering microcredits themselves, if they choose to do so.
Credit information system
If Facebook decides to not go the route above or chooses to launch another business, they could easily become the largest and best credit information data provider. They have data nobody else has and banks would pay a lot to get this information. Here, the privacy problem becomes a bigger one as Facebook cannot just transfer the data. From Facebook’s point of view, the best thing would be to let the banks negotiate the access with each bank client, who is a Facebook user.
I have more examples, but this was just to show, that the possibilities are endless.
As I have stated initially, it is basically taking your assets and what made you successful in the first place and finding new ways to use them effectively.
As I mentioned in the opening paragraph, there are many ways for Facebook to haul in boatloads of money and Mark Zuckerberg be all smiles. It is not only “how do we generate revenue”, but equally important “when do we start with which one”. That’s tricky, and a distinct timeline can only be set by the company itself, of course. My suggestion would be to start the Event/Pictures point in parallel with the business network. The latter has the most impact, the first can be set up the easiest and they don’t interfere with each other. I have no affiliation with Facebook or any insight or access, so these are just my humble suggestions and assumptions. Whatever is going to happen, it is definitely exciting to see, where Facebook is actually going and what is possible for them.
Next up: How Google can prevent Facebook from taking over