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Among reports that it was having trouble unloading $1 billion worth of shares at a very rich valuation, Facebook last week tweaked an existing advertising service and started testing its first home-grown social commerce product: Facebook Deals. Will that be Facebook’s next billion-dollar business? Possibly. But it already faces stiff competition from Groupon and LivingSocial, not to mention a new Google entrant. More importantly, Facebook should consider exploring other growth- and revenue-generating opportunities.
Let’s examine each of these potential new revenue streams.
Facebook makes its money from low-priced display ads and the commission it takes from social gaming companies using Facebook Credits for virtual goods. Facebook’s three best new business opportunities are:
- Rich media brand advertising. To get beyond low-priced display ads, Facebook needs a big ad unit that supports rich interactive media and video. If the company is worried about user resistance, it can show the ad only once a day. Other than Yahoo, Microsoft and AOL, no other site has inventory with the audience reach for this kind of advertising, which commands $30+ cost per thousand pricing and is usually sold out. This one should be a slam dunk.
- Deals and social commerce. Facebook’s toe is barely in the social commerce water – it’s testing in only five cities, sourcing deals from partners, and not charging merchants yet. Facebook is focusing on more social, shared-experience deals like restaurant discounts or concert tickets. Local deals require an expensive local sales force that Facebook doesn’t have.
- Connect-based ad network. Facebook has access to ready-made, desirable space through Connect services such as its Like button, sign-on and comments. Facebook could show contextually relevant ads just like Google’s AdSense network. If publishers balked, and weren’t cowed by their need for the traffic Likes generate, Facebook could always share a piece of the revenue.
There are plenty of other potential revenue opportunities, but to capitalize on the ones above, Facebook will likely need to form strong partnerships. For more on the possibilities there, read my latest Weekly Update at GigaOM Pro.
Image courtesy of flickr user stevendepolo