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Kunj Ramaiya Mrigna Suchde 22 April 2009
Social networking sites don’t seem to be generating enough revenues compared to their usage. The nature and nomenclature of these connections may vary from site to site. These websites are a rage now. Cyworld. and Bebo have attracted millions of users. Social network sites can be defined as web-based services that allow individuals to (1) construct a public or semi-public profile within a bounded system. are Ranked below in order (www.compete. Despite of being extremely popular and regularly used. and every other person uses either one of them.com): . (2) articulate a list of other users with whom they share a connection. and (3) view and traverse their list of connections and those made by others within the system. This is a question. People view them as the easiest and the best way to keep in touch with friends and family all around the world. many of whom have integrated these sites into their daily practices.Introduction Social network sites (SNSs) such as MySpace. Facebook. the makers are still trying to answer. The most popular Social Networking sites.
What is Facebook? On February 4th. . The graph above shows the growth of users since the birth of Facebook. a social network that was at the time exclusively for Harvard students. Facebook users’ passion. yet with only $150 million in annual revenue. to the site is unparalleled: more than half use the product every single day and users spend an average of 19 minutes a day on Facebook. Microsoft invested $240 million into Facebook for 1. Based on these types of numbers.1 billion photos uploaded. totaling over 50 million active users. 2004 Mark Zuckerberg launched The Facebook. opening up to high school students in September 2005 and adding an immensely popular photo sharing feature the next month.6 percent of the company in October 2007.000 daily. Facebook received 40 billion page views a month. 200. Facebook continued to grow. making Facebook the 5th most valuable US Internet company. Over 1 million new users signed up every week. This meant a valuation of over $15 billion. Facebook’s growth in the fall of 2007 was staggering. . or addiction. Facebook is 6th most trafficked site in the US and top photo sharing site with 4.
when Facebook took a $240 million stake from Microsoft. with no magic levers to reverse the trend in the short term. Facebook will generate about $125 million. The company has been running banner ads through a deal with Microsoft for years. the investment was at a $15 billion valuation. it's burning through millions of dollars a month (some claim it's as high as $20 million). Apart from the virtual gifts section on Facebook. they are just not enough compared with its popularity and usage. the big question is: how can it show it can make money? Ways Facebook is making money: Facebook seems to be generating revenues. and its revenues have become “less and less dependent” on them as a way of making money. As Facebook works its way toward a probable IPO. it does not have any other application which helps raise funds. leaving about $180 million for other general social networking sites such as . While people have complained of Facebook’s horrendous click-thru rate. Compared with MySpace's predicted $525 million in online ad revenues for this year. In November 2007. Instead.The big problem: As fast-growing Facebook closes in on MySpace in the U.S. in terms of unique visitors later this year. those clicks are by highly targeted individuals. Most of the social networking sites are known to earn their money through the concept of ‘virtual goods’. Facebook seems to be making more money on anything from its own banner ad sales to its experimental advertising efforts. but as mentioned earlier. Now it's down to $4 billion and probably less. It appears that SocialAds is Facebook’s primary monetization tool.
people use the social networking site for fun and to communicate. but unless there’s a system in place to persuade them to part with money at one point or other. The difference can clearly be seen. then money still doesn’t enter the equation. and Facebook is still figuring out a way to increase their revenues. raising brand awareness. Friendster and Piczo. daily. Three things should be kept in mind while developing a ‘paid’ Facebook application: 1) Users should WANT to invite their friends to join the application. It won’t be worth their while to spend time developing an application that can’t be monetized. 2) An exciting or fun application keeps users coming back and creates a long-term retention rate. . extending a brand. Other than that.Bebo. Most of the Facebook applications run for free. that isn’t enough. developers will eventually stop developing for their platform. You can have everyone in the world visiting your site. but without great methods to monetize. and some games such as Texas Hold’em Poker. require people to pay a certain amount if they want to buy a certain amount of chips. Again. Of course. Applications can create value/revenue by driving traffic to an outside web property. so they will not be willing to pay for just any other application. creating a brand this might live off of Facebook later as well. What can Facebook do? Ideas/ Innovation: Facebook is the new kid on the block. Top Friends and Hobo Wars are great examples.
then Facebook would be generating sky-high revenues. and now if you have the perfect user base. but a steady increase will be seen with time. T-shirts and caps are common. Having a hugely popular website is not going to get you rich unless you have a revenue model already planned into it. b) Get into merchandising of various products. is to lay down the real facts/ideas and cut out the assumptions/myths. Advertisements will do the trick: By putting up more than a hundred ads. this is bound to work. Very small. The real facts or ideas which Facebook can put into use: a) Good things come in small packages. Naturally. more than half of its users will no longer be interested and will not recommend the website to anyone else either. and if this were true.3) There are plenty of applications out there. Imagine putting in goodies that cost a dollar by the hundred. Next. They are just not useful and they are not convincing enough. which fail: More users. but . means more money: This is a very false assumption. Subscription fees: If networking sites start charging people for a fee to sign-up or use the service. so making sure that it divides itself from the competition somehow and is very unique. the website cannot earn all the money it is investing. that they try to generate revenues by doing the following. it will not push the revenues immediately. The problem noticed within such sites is.
and people are always looking for creativity and innovation on the internet. Microsoft is showering its resellers. This style of advertising will appeal greatly to the age group that uses Facebook mostly. which is a common reference. and make money from these applications as well: Facebook should market themselves the way FCUK clothing or Juicy Couture does. to let someone know that they have been thought of. it will definitely work. People are spending ever increasing amounts of time each day on these websites and are still not that much loyal to not consider switching to another site. Margins will be high if done in volumes and shipping be within a manageable geographical area. and remain with its users for a long period of time. Here are some innovative ideas that Facebook can consider. c) Research shows that Google shared commission with people if they put up AdSense code within their pages. If Facebook really wants to be popular. Similarly. another famous brand for women. markets themselves by producing tracks that say ‘Juicy’ on the rear side. 18-30. In addition. such as ‘FCUK – Your plaice or mine’. Juicy Couture. ‘Poke’ should be printed on all kinds of apparels.Facebook can come up with innovative ideas to design its merchandise. FCUK appeals to a mass market by using ‘double meaning’ statements. T-shirts and on the rear of . as their marketing strategy. Facebook should brand itself similarly using their famous word “poke”. via the website. a better and rewarding one. this factor is worth a thought. Even Facebook should start doing so. since everyone knows that Facebook’s applications keep the website alive.
The cheaper the rate. the more demand would arise leading to higher revenue. This way. Facebook can also target those that are above 18 in the Western countries and those that are above 21 in the Middle Eastern/Asian countries by launching their own beer bottles. for free charging them a very small percentage of their profits by keeping a record of their balance sheets. Mark Zuckerburg. This is something new and ‘funky’ and lots of young-aged users will be attracted to this idea if sold at a very reasonable rate. Facebook should allow companies to advertise via groups by charging them $1 per group per month. they can allow them to advertise on the main stream area. emerging companies with young entrepreneurs and if they feel that they are talented enough and have the potential to grow. These beer bottles can be known as the “Facebook Beer Bottles” that make approaching . it would give Facebook an excellent increase of cash inflow. Another strategy Facebook could implement is that of banning those that advertise on Facebook by the use of ‘groups’ and by inviting random people to join or even banning those that create accounts using their company names and adding people to gain recognition.all tracks. There are 200 million users in Facebook till date and even if 10 % of them are willing to advertise. It would be a great way to encourage the younger generation to get into business and won’t be much of an expense to them as they would be charged a percentage only on their profits rather than sales. Facebook can also analyze new. Instead. the side panes. the more affordable it is to the mass public and so. jeans etc. Facebook could also be recognized as a platform for encouraging new businesses/young entrepreneurs since Facebook itself was created by a young student.
the people who are interested in creating their own bottles can pay a certain amount and come up with their unique labels as well. a very different experience for the younger generation! So.)’ This would be an excellent exposure for Facebook and surely. It involves both strategy and implementation. they should hold a voting poll where natives could choose one from a set of 5 singers who would perform live at a ‘Facebook concert’. Id: xyz. Are you? . these singers might actually become stars through Facebook! This will be a very good advertisement for Facebook and will become a huge part in every user’s life. Prior to the voting. most of their users are from the United States. Choosing a Business Model for Facebook: Business model is the mechanism by which a business intends to generate revenue and profits. they should hold a poll system where users would be allowed to vote for their favorite singer and whichever singer has the most amount of votes would be called in to perform live in front of a handful of Facebook audience. they could hold events as such all over the world! And who knows. users would be charged $50 cents! They could raise fund from Facebook users and sponsors for the event and if this event works out successfully. Accordingly. For each vote.people at bars and clubs easier and unique. Facebook should speak to all 5 singers and negotiate to agree to a certain price that they would be willing to pay. These ‘beer bottles’ can have labels that say ‘I’m on Facebook. A detailed study could be performed where Facebook must identify where most of its users are from and say for example. It is a summary of how a company plans to serve its customers. .
besides letting Microsoft broker ads for it. multi-level marketing business model and the network effects business model.It is the totality of: How it will select its customers How it defines and differentiates its product offerings How it creates utility for its customers How it acquires and keeps customers How it goes to the market (promotion strategy and distribution strategy) How it defines the tasks to be performed How it configures its resources How it captures profit As Owen mentions in his article. Facebook fits this model because the more registered users there are on the site. pyramid scheme business model. the best business model would be network effects business model. This choice made for Facebook has been explained in detail using the eight criterias: . "We need to find a new model and new metrics. This type of business model is based on the network effect which causes a good or service to have a value to a potential customer dependent on the number of customers using that good or service. razor and blades business model. Facebook COO Sheryl Sandberg all but admitted her company still has no idea how it's going to make money. the more useful the site is and eventually becomes. For Facebook. it was found that there are various different types of business models such as: The subscription business model." Upon doing research.
. Also. Most of these social networking sites are not very specific and have a variety of users. One of the key elements to Facebook’s success is differentiation. MySpace. the real URL that they are accessing is in fact http://aud.com/home.com into their browser and logs onto the site. particularly from the social networking giant.facebook. He moved on by giving access to other colleges and universities world wide and that is how it gained popularity. For example. primarily in the United States. What makes a student with an existing MySpace account want to register with Facebook? The answer to this question lies in how Facebook sets itself apart from other social networking sites. Facebook is the only brand of these sites that is for students and students only. Zuckerberg started the website keeping it specifically for high school (recently).php.How it will select its customers Facebook’s selection of customers is a very important part of the company’s business model. college and university communities. when an AUD student types www. How it defines and differentiates its product offerings The second aspect of a business model is how the company defines and differentiates its product offerings. members are mostly restricted to viewing detailed information about students only at their school or networks.facebook. more intimate communities are created based on the networks and it is easy to track down particular individuals using that network. Social networking sites have been on the rise and extremely popular amongst most of the internet users today. to narrow down the potential networks even more. As a result of this. This fact is what makes Facebook’s selection of customers so important.
Users continue to visit the site to partake in one of the newest activities. At first it was simply a site to connect college students but now it is becoming a staple in the college social scene and in everyone’s daily lives. The only website which people can be logged into for a long time is Facebook.” Facebooking defined is the act of simply browsing though facebook. and monthly 93% Keeping the customers is a very easy task once they are on Facebook. The statistics are almost unbelievable: 5M+ registered users 10th most visited Internet site in the US 5. b) sending him/her a message. c) .000 new users a day Repeat usage: daily 70%. How it acquires and keeps customers Facebook is able to easily acquire and keep customers due to its increasing popularity.5B page/views a month (230M page/views a day) 8. weekly 85%. “facebooking.How it creates utility for its customers Facebook has become increasingly important to everyone these days. the verb “Facebook” (as in “to Facebook”) is used for the looking up of a certain individual and a) adding him/her as a friend. The utility that Facebook creates for its customers is essential in creating traffic. People find it the best way to find out or know about their friend’s and families and around the world events.5M unique visitors Signing 20.com with no specific purpose. More specifically.
. and friends the site notifies the user how he/she is connected.’ These features bring about major opportunities for the communication that users are looking for. it would be an online directory comprised of college students for their use and benefit. interests. Zuckerberg added a variety of features that the user could utilize while on the site such as messaging and poking and a variety of applications suited to every field of interest. groups. How it goes to the market Promotion hasn’t been a major issue due to Facebook’s instant success. Another major task that Zuckerberg was faced with was setting his social network site apart from the others.‘poking’ him/her. Facebook has not funded any major advertising campaigns in order to increase awareness because the awareness was there from the start. This task was performed by making the site exclusive to ones college. as current users rave to their friends about it. Publicity and articles have also helped promote Facebook. In order to demand traffic a site must be unique in one way or another. Zuckerberg had a clear idea in his head of the service he wanted to provide the user with. Also. How it defines the tasks to be performed The tasks to be performed were very simple from the beginning in creating Facebook. or d) writing on his/her ‘wall. This feeling of connection is very important because that’s what the general population of users are seeking. forming a more intimate community. Through classes. Zuckerberg started Facebook as an online directory of Harvard students and it was an instant hit. Essentially. The promotion of the site has been mostly through word of mouth.
About 70% of its five million plus users log on the site daily and these users are all between the ages of 18 and 24. Zuckerberg offers three different ways to advertise: banner ads. Peter Thiel.) Facebook is able to create a more secure and efficient network by co-locating its servers. A down server could result in the loss of millions of page hits. How it captures profit The big question behind Facebook and many other free online networking sites is: how do they actually make money? The answer is mainly advertising. The advertising prospects are just too high for big companies to ignore. .How it configures its resources The major resources of Facebook are the servers that keep the site running despite the heavy amounts of traffic. the growing audience could not be contained and in the fall of 2004. which is very important in the operations of the business. With little funding at the beginning. The rest was discussed above. These servers are very essential because the services and operations of Facebook depend solely on the website. However. former Paypal CEO. (Theil noted that this particular investment was one of the best venture investments he’d ever made. Zuckerberg was forced to keep Facebook relatively small because only so many servers could be purchased and set up. and announcements. invested $500.000 to buy servers to help support the rapid growth. Advertisements on Facebook are very valuable considering the amount of traffic the site is able to generate. sponsored groups.
It has excelled every feature and aspect a person looks for into a social networking site. There might not be anyone who does not know or use Facebook. upmarket feel to it. age. One of the best Social networking sites ever created in the history of the internet. Facebook is cleanly designed and has a classy. Facebook has certainly helped people come closer in a very realistic manner. “Facebook's appeal is both obvious and rather subtle. romantic status and institutional affiliations. Identity is not a performance or a toy on Facebook. Nobody does anything secretly: a news feed constantly updates your friends on your activities. Conclusion: Mark Zuckerberg states "Building and moving quickly for five years hasn't been easy. whereabouts. People tend to use their real names on Facebook. but in a sense. "The challenge motivates us to keep innovating and pushing technical boundaries to produce better ways to share information. So many people use face book religiously. They also declare their sex. looking at the outstanding growth in five years itself. and means a lot to many people. it's another version of the Internet itself: a Net within the Net. it is a fixed and orderly fact. and we aren't finished." he said.Facebook’s future: As Grossman states. . Facebook is God of all websites today." Facebook is definitely here to stay. only a few might doubt its expansion in the future. one that's everything the larger Net is not”. It's a website.
<http://gawker.clickz.indiana. “Sheryl Sandberg on Facebook’s business model” 7 Oct.com.html> Thomas. Kevin “Facebook to Offer new Ad options” 20 April 2009 <http://www.edu/vol13/issue1/boyd. 2008.15114.fortune.softtechvc.ellison.html? promoid=yahoo > “Facebook” 20 April.com/Facebooks+Greek+drama/2100-1046_3-5895963. and Scholarship” 19 April 2009 <http://jcmc. 19 April 2009.1130217.com/company/facebook>.com/3527336> “Social Network Sites: Definition.com/5060331/sheryl-sandberg-on-facebooks-business-model> .com/time/magazine/article/0. <http://www.Reference: “Advertising revenue on social networking websites” 20 April 2009 <http://www.com/2009/02/09/facebook-myspace-twitter-socialnetwork/> Newcomb.shtml> Bartons. Twitter Climbs” 19 April 2009<http://blog.com/internet-marketing-news-001/VN-4001-09080703873510848826.time. “Social Networks: Facebook Takes Over Top Spot.00. Lev.1655722.9171. Zoe “Facebook’s Greek Drama” 20 April 2009 <http://news. Owen.signalversusnoise.00. Andy. 23 Aug 2007.compete.html > “CNNmoney.2009 <http://www. History. 21 April 2009.com/2005/10/the_facebook_un.html > Kazeniac.html> “Jeff Clavier’s software only” 20 April 2009 <http://blog.com/fortune/technology/articles/0.crunchbase.com” 18 April 2009 <http://www. “Why Facebook is the future”. Grossman.
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