Facebook Monetization Study

    I publish an analytical study of the Facebook project. The
    study was prepared by Mikhail Ananyevsky ( Embria research group ) specifically for the LiveIdea.ru portal .

    The Internet is booming, new technologies, standards and concepts for creating Internet resources are constantly appearing. In 2005, they started talking about a qualitative change in the development of the entire Internet as a whole. New ideas and approaches were called "Web 2.0", its essence lies in positioning the web as a platform. Web 2.0 includes sites using technologies such as ajax, mash-up, web syndication, ideas for tags and tags, as well as Internet resources aimed at socializing and creating communities. In the past few years, a large number of social networks have appeared. The largest in the world are myspace.com, facebook.com, xing.com, classmates.com, etc. In RuNet, one can note such successful projects as classmates ( odnoklassniki.ru ), my circle ( moikrug.ru ), VKontakte (vkontakte.ru ) and others. Similar Internet resources can have an active audience of tens of millions of visitors per month. Moreover, these visitors spend a significant part of their time on these social networks. However, questions arise. Can resources of this type generate revenue? Are these projects unprofitable? It is worth remembering that the revolution that Google made was not so much in the invention of a new type of search, but in the discovery of the method of earning on search engines that did not bring such fantastic profits before. Now many expect from social networks something similar to that revolution which Google once made

    Facebook is currently one of the most promising developing social networks of the Internet. Created three years ago by a group of enthusiasts, the project immediately attracted the attention of investors. During these three years, the volume of venture investments in the project amounted to about $ 38.5 million. In October 2007, facebook.com was estimated at $ 15 billion, despite the fact that its income for that year was forecasted at only $ 150 million (i.e. e. 100 times less).

    The purpose of this study is to study the monetization schemes of one of the largest social networks facebook.com. The history of the facebook.com project is usually counted from February 2004, when Mark Zuckerberg, along with Dustin Moskovitz, Chris Hughes, and two Harvard students, released the first version of this social network. The domain facebook.com, was purchased only in August 2005, for $ 200 thousand from Aboutface Corporation. The project immediately received the support of investors. In the same 2004, one of the founders of PayPal Peter Thiel invested $ 500,000 on facebook.com. Later, in May 2005, Accel Partners Venture Companyinvested another $ 13 million in the project. The development of the project after that is proceeding rapidly. In April 2006, facebook.com was already in the top ten among social networks by the number of visitors. In the same year, the project receives $ 25 million in injections from a number of ventures ( Graylock Partners , Accel Partners, Meritech Capital Partners , Peter Thiel). In total, over three years the volume of venture investments amounted to $ 38.5 million.

    Ventures usually invest in equity in non-traditional (new, and sometimes completely original) companies. On the one hand, venture capital investments are at increased risk, and on the other, the likelihood of super-high returns will increase. Venture financing is a kind of loan to new companies, a long-term loan without obtaining guarantees, but at a higher percentage than in banks. A very characteristic feature of venture financing is that the investor almost never seeks to acquire a controlling stake in the company, which is fundamentally different from a “strategic investor” or “partner”. The investor assumes mainly financial risk, and transfers such types of risks as technical, market, managerial, price, etc. to management,

    The cost of the facebook.com project and its total revenues are very impressive figures. In October 2007, Microsoft bought a 1.6% stake in Facebook for $ 240 million. Accordingly, the entire project is valued at $ 15 billion. In December 2007, the head of the Asian telecommunications conglomerate Hutchinson Whampoa, Lee Ka-shing, also bought a small stake in facebook.com. According to Dow Jones, Lee paid $ 60 million for a package of just 0.4%. According to a study by the Wall Street Journal (WSJ, August 23rd), facebook.com revenue for 2007 was projected at about $ 150 million, with costs of about $ 30 million.

    One of the components of the financial success of the project is its attendance and user activity. In November 2007, more than 86 million active users visited facebook.com. At the same time, users view more than 1 billion 785 million pages per month. Half of the traffic comes from English-speaking countries. 28% of users are residents of the United States, 9.7% - of England and only 9.1% - are residents of Canada. This is logical because facebook.com only supports the English interface.

    Another component of the success of the project is the extraordinary mechanisms of monetization. Let's look at the basic monetization tools facebook.com. The main source of income is advertising.
    • Standard banner ad display. Almost all facebook.com pages have a banner below or to the left. Now facebook.com receives 0.30 euros per thousand impressions (CPM = 0.30 euros). With current attendance, this brings about 780 thousand dollars a month. It is worth noting the extremely low clickability - about 0.04% (for comparison, the largest social network myspace.com - in the region of 0.10%). In August 2006, Microsoft bought the exclusive rights to use these advertising sites for three years.
    • Market Advertising. First you need to determine the terms. Marketplace (marketplace) - a place where registered users place advertisements for the sale, lease, rental, job advertisements, etc. A flyer, on the other hand, is a short advertisement related to any existing advertisement on the market. Up to 20 flyers are displayed on any market page. Any user who has placed an ad on the market can advertise it with flyers. The cost of 500 impressions is $ 1, another $ 1 must be paid for each network (a global community on a certain basis. For example, students of one university, residents of the same city), on the market of which an ad must be shown. Thus, the minimum fee is $ 2 (500 impressions in one network). This type of advertising brings the project 700 thousand dollars a month.
    • Facebook.com regularly tries new solutions as part of a study of the advertising capabilities of social networks. For example, in November, a new type of advertising was launched: social. Its essence lies in the distribution of advertising in a social graph: from the user to his friends (a social graph usually means a group of people connected by any relationship: friendly, business, casual, etc. People correspond with the vertices of the graph, and their relationship with ribs). Advertising can be accompanied by a social history: if a user visits a page dedicated to a product / service on facebook.com or a site that is a member of the facebook beacon project (the facebook beacon project is a group of Internet projects that exchange detailed information about the user. Example: Since the Facebook transmits information to Amazon, which allows it to offer more interesting products to the user), the advertising display of this product / service is carried out among the friends of this user. Also, this display may be accompanied by a photo of the user and a description of his actions (for example, evaluating the advertised product / service). Of course, various additional filters are possible for ad impressions: by gender, by age, by geography, etc. Advertising is placed either in the "news" of the user, or on the page on the left. Advertising prices are determined on an auction basis, but they have not yet been formed. This type of advertising, apparently, still brings a small income. While the potential of this type of advertising is still not clear. But in the future, he has every chance to develop into one of the most powerful tools for monetizing social networks. Advertising is placed either in the "news" of the user, or on the page on the left. Advertising prices are determined on an auction basis, but they have not yet been formed. This type of advertising, apparently, still brings a small income. While the potential of this type of advertising is still not clear. But in the future, he has every chance to develop into one of the most powerful tools for monetizing social networks. Advertising is placed either in the "news" of the user, or on the page on the left. Advertising prices are determined on an auction basis, but they have not yet been formed. This type of advertising, apparently, still brings a small income. While the potential of this type of advertising is still not clear. But in the future, he has every chance to develop into one of the most powerful tools for monetizing social networks.
    • The next monetization tool, sponsor groups bring facebook.com (similarly seen in myspace.com) the lion's share of revenue. Sponsorship groups are a special type of group in social networks designed to position the brand, create and maintain its active audience. Sponsorship groups have their own advertising platforms, and no advertisements on the pages of sponsor groups are shown. Support for such a group costs $ 300,000 in three months. Currently (December 2007) there are 230 sponsored groups on facebook.com, among them: Apple, NBA, Nike, Victoria's Secret, etc. In total, sponsor groups bring the project $ 23 million per month.
    • An interesting and very significant source of income is virtual gifts . Their essence is that users can give each other, for a symbolic price of $ 1, pictures with funny images (Christmas tree, hamburger, pirate flag, flower, etc.) and related inscriptions. Virtual gifts are stored in the user profile. On average, this brings facebook.com another $ 2 million per month.

    Thanks to all these services, the project’s profit more than covers its costs. The revenue of facebook.com is growing very rapidly: in 2005 $ 10 million was earned, in 2006 - about 50 million, for 2007 about 150 million were forecasted. Moreover, the monthly income at the beginning of 2007 and at the end differs by more than an order of magnitude.

    Russian analogues.

    Russian facebook.com can rightly be called vkontakte.ru. Until today, the owners of vkontakte.ru made no attempt to monetize their project. Moreover, its creators have repeatedly stated that there will be no advertising in vkontakte.ru. However, based on a comparative analysis, it is possible to determine the possibilities of monetization of the social network vkontakte.ru. You can also display approximate amounts that these or those services can bring. The example of facebook.com shows that standard advertising is less than 6% of total revenue. If you consider how many times the social network vkontakte.ru is less than facebook.com, then the price of the sponsored group in vkontakte.ru will be relatively small. However, the cost of virtual gifts may well be the same - $ 1. Thus, virtual gifts can become a full-fledged source of income. You can pay for this feature using SMS messages. Other SMS services are also possible - this market in Russia is quite developed. As an example, we can cite the paid access service for top users, which is widely used for monetizing various online dating services. Its essence lies in the artificial introduction of inequality between users, for example, if there are places for showing 10 avatars on the main page, then, accordingly, a paid service for showing your avatar on the main page is introduced (payment is usually taken for the number of impressions). The market (marketplace) on the scale of vkontakte.ru can also bring quite decent income. Sponsored groups, virtual gifts and the market can make the vkontakte.ru social network a very profitable project without the use of annoying banner ads. In addition, many facebook innovations. com in the field of social advertising can be successfully applied in Russian conditions. According to the research teamEmbria companies , vkontakte.ru in the Russian market can now cost about $ 10-12 million. But if monetization mechanisms are introduced and the number of services is increased, and as a result, users become more attached to the project, its price will increase. Western investors can now evaluate this project much higher.

    www.comscore.com , www.facebook.com , www.compete.com , www.alexa.com , www.emarketer.com ,
    Wall Street Journal , Microsoft , www.wikipedia.org , www.valleywag.com , www.quantcast.com

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