Social Networks And Profitability: Facebook, MySpace Look Beyond Ads

Much has been made about Facebook’s $15 billion valuation, but when will it start making some actual profits? Mike Murphy, the social net’s VP of media sales, tells USAT that’s the question he gets asked most often. The short answer: the ad dollars will soon be pouring in from the social net’s long list of marketing partners. But, as Bill Eager, co-founder of marketing solutions provider bSocial Networks, admonishes, “You can’t have a $15 billion market valuation based on advertising alone.”

Some suggest that social nets round out advertising with premium subscriptions – as MySpace is considering – or licensing agreements. Both Facebook and MySpace are hoping to expand their reach and maintain their membership by allowing viewers to take their respective profiles with them to other sites. The social nets’ embrace of “user data portability” is part of a larger growth strategy. Facebook will let users put their profiles on any site that would have them, while MySpace is limiting placement to a handful of sites, such as eBay (NSDQ: EBAY) and Yahoo (NSDQ: YHOO). And while MySpace is playing up the HyperTargeting program it launched last summer as a key to growing revenues and its profitability, it is also stressing the importance of marketing deals with major record labels on the sale of ringtones, artist merchandise and concert tickets. Continued global expansion rounds out MySpace’s strategy.

Facebook, having learned some lessons from its Beacon project last fall, is also pursuing more targeted advertising initiatives (e.g., its deal with jobs site CareerBuilder). It is also looking to collaborate with other marketers and local advertising and direct response. Even as it waits for all these gambits to produce, Facebook says it will double its revenue to $300 million to $350 million this year, its fourth. As USAT points out by way of perspective, by its fourth birthday, Google’s (NSDQ: GOOG) revenue grew fivefold to $440 million, suggesting that Facebook may just get to profitability sooner rather than later.

Staci adds: This is the second time in recent days that Google the search engine has been hauled out as a measure of social network revenues. During last week’s News Corp (NYSE: NWS) earnings call, COO Peter Chernin offered the length of time it took Google and Yahoo to reach $1 billion as an example of why Fox Interactive Media parent MySpace is still doing well despite its failure to hit a $1 billion target this year. (FIM is just shy of three years old; MySpace is older but wouldn’t be as close to $1 billion without the other FIM properties.) It’s handy, especially if you can ignore the lack of a real comp beyond both being web-based tech start-ups that rely on advertising for money. Update: Just heard from someone who suggested I could make this clearer: I don’t think you can compare the revenue trajectory of FIM, which is a rollup of pre-existing companies, to that of start-up Google or even Facebook.