facebook monetization strategy

A lot of the talk coming from top Silicon Valley experts/bloggers at the moment is about facebook's monetization strategy. How do facebook turn there community growth into cash? This is the question that Mark Zuckerberg needs to answer in order to make good on the $15 billion valuation that his company now has thanks to Microsofts investment of $240 million for 1.6% in October last year.

I was not surprised to find the most interesting and informative post (from my perspective)  about facebooks monetization problem over on 500 hats. I love the way that Dave actually presents potential solutions for facebook, rather than just bagging them about the issue. This is a great post for those who (like me) believe that facebook does have a future as a business and it's just going to take them some time to perfect their monetization strategy.

For more of a generalist perspective on the situation, I would recommend that you read GigaOm's take on the issue.

I find the topic of facebook monetization to be extremely interesting as it raises a key question: How money will be made off the new breed of web 2.0 based businesses, particularly those that are based around the idea of social networking?

For those of us that aspire to not just partake in the web 2.0 revolution, but make profit from it, we must remember that a clearly defined business model is crucial. The vast majority of entrepreneurs that undertake the commitment of an internet startup are not going to be blessed with the problem that facebook has- a huge community growing really quickly, but no clear monetization/business model.

I suppose that what I am trying to say is that one would be taking a huge risk to go down the path that facebook has, particularly if you are targeting a small market like New Zealand. The safer approach would be to have a clear monetization/business model built into your strategy well in advance.

There are simply not enough people in New Zealand to generate a community or social networking type site that would warrant further investment purely based on the numbers and growth of the community itself.

One need look no further than New Zealand's one true e-commerce success story to get a great example of how important a well defined business model is for success on the internet. The brilliant thing about Sam Morgan and Trademe is that he did not even try to re-invent the wheel, he simply 'borrowed' what was already an extremely successful model in the form of eBay.

Comments

[dave mcclure]

thanks for the kind words james :)

andrew chen & noah kagan have also done some great posts / discussion on monetizing social networks & apps, and on viral techniques. dan olsen is also a new voice on these topics:
http://andrewchen.typepad.com
http://okdork.com
http://www.olsensolutions.com/index.php?p=speaking

naval ravikant & jeff clavier don't write much these days (altho naval does other writing on VentureHacks), but both of them are excellent thinkers / speakers on social networks & apps. also josh kopelman & fred wilson too.

for more on these topics, you can also come to our Graphing Social Patterns conference in DC on June 9-11:
http://graphingsocial.com/

regards,

[James]

Hey Dave,

Thanks for the comment. As I mentioned in the post, I'm a big fan of 500 hats!

I will check those links out for sure.

Thanks again

James

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[David]

The monetization pressure is even greater since the Goldman Sachs $50 billion valuation, see Facebook valuation history. Perhaps I'm over-simplifying it but are there not just two basic business models? 1) Charge for service and 2) Provide free service with advertising revenue. An extension of 2) might be to leverage B2B charges but no fees for users.

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