Perhaps you heard some noise this week about a $50 billion valuation for Facebook. Or mumblings about a nine-month profit of $335 million? Or a potential IPO in 2012? Putting a value on Facebook is beyond my pay scale. But Facebook is the most important player in social media, and social media — along with mobile — is driving innovation across the entire technology spectrum. So to better compete against, partner with or invest in Facebook, it’s worth evaluating its market positions, strengths and weaknesses.
As a Technology Platform, Facebook has established itself as one of the largest Internet companies in terms of audience reach, frequency of usage, and ability to drive traffic to other online sites. Facebook’s APIs, Likes and Connect are widespread. While Facebook benefits from network effects, I suspect the current proliferation of APIs from players including Twitter, Google, and Microsoft, will continue. Net: Facebook should remain a leader in consumer technology, but likely won’t establish a winner-take-all platform.
Advertising is Facebook’s primary revenue stream, and advertising is a business driven by economic cycles and one that demands ever more cross-media campaign coordination and ROI measurement. As it develops targeting via its social graph, and builds out sponsorship opportunities and measurement systems, Facebook will be able to raise prices and garner more brand advertising spending. Net: Facebook has mass media status and plenty of growth opportunity, but it is an Internet-only media company that should focus on and beef up its efforts in brand advertising, and establish partnerships for search, ad networks, and email marketing.
Virtual goods from social games provide Facebook with $250 million in revenue, but it shows no interest in other digital goods like music and video. E-commerce, meanwhile, may provide some opportunity for Facebook retail storefronts, but the online mall approach never worked for portals like Yahoo and Aol.
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Image source: flickr user Franco Bouly
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