What Does Facebook Create?
by Jared Sichel | Tulane University
Conventional wisdom would argue that Facebook’s potential $100 billion market value is a bit optimistic. Its earnings last year were just over $3 billion, impressive no doubt for a young, private ad-based business. But $3 billion will have to turn into many more billions eventually, and not one cent of that will come from users. Good luck instituting a paid-for service after a decade of free usage. Remember Bank of America’s failed attempt to charge a $5 monthly fee for debit cards?
Apple earned $26 billion last year and has a market value of a half-trillion dollars. Exxon-Mobil earned $41 billion last year and has a market value of $384 billion. Both Apple and Exxon operate like most companies; they sell goods to the market. Apple sells devices that are affordable in affluent nations. Exxon sells oil and gasoline, necessities for the foreseeable future in every growing economy.
Facebook is a network-information company. Their future depends on bringing in as many users as possible, collecting and organizing their users’ private information, and connecting that information to the economy that sells goods. Mark Zuckerberg must know that Facebook cannot restrict itself to its current online-only model. How many times have you clicked on a Facebook ad? Four. Ever purchased anything after clicking? Me neither.
Holman Jenkins, a business columnist for The Wall Street Journal, has argued that the real value of Facebook will come if the company purchases network and cable television companies. If your television knows you thanks to Facebook, expect to receive targeted commercials for Firestone tires. Facebook will identify your need for new tires based on your status updates, comments, and wall posts. Firestone will pay Facebook to get access to you.
Like any ad-based firm, Facebook’s profits depend on companies believing that advertising helps their profits. And the wider Facebook’s user base, the more likely it is that any given ad will result in a purchase. In this sense, Facebook is different from NBC only in how it captures users. NBC doesn’t make money from you. It makes money from advertisers, who only give money if there is a you. NBC gets you in by making sitcoms. Facebook gets you in by designing an amazing information-sharing platform.
Facebook has already captured nearly 1/6th of the world’s population. Almost 1 billion people have profiles on Facebook. And of that 1 billion, hundreds of millions regularly share information about themselves that are relevant to companies. Last month, 9% of all Internet visits in the United States were to Facebook.com. More auspicious for Facebook is that the average time spent on the website is 20 minutes per user. If people are “in a mood to share”, as Jenkins puts it, companies will know who likes what. 20 minutes is plenty of time.
Privacy? Perhaps from other users. But not from companies. The cost to the user for the privilege to use the greatest social interface platform in human history is that everything you do will be collected. The useless data will enter a black hole and the useful data, well, let’s just say, there is no privacy.
And this is what Facebook creates: You can organize events, create online clubs, keep in touch with old friends, gather information about people in a “covert” manner, advertise yourself to employers, collect and tag photos. Facebook makes us wealthier because it allows us to make journal entries about our life whenever we want. And unlike a real journal, Facebook is fun and addictive.
If Facebook’s advertising potential is brought to fruition, we will be more easily connected to products that we want. Instead of searching for 30 minutes for what we think we want, companies will know us so well that they will tell us — correctly or incorrectly — what we want in a 30-second targeted commercial.
Facebook used well is in fact a huge time saver. Keeping track of life on Facebook takes far less work than using photo albums, journals and email chains. In elementary and middle school, football games at my school were organized by calling friends and writing the attendees names on a notepad. That could take hours. Facebook cuts that process down to 10 minutes.
The catch is that Facebook is often used poorly, resulting in days of wasted time for the less responsible user. Not an issue for advertisers of course. They only care that you use Facebook; wasting time is your problem. And although Facebook makes it easier to waste time, the wealth created by the time it saves and the people that it connects likely outweighs the wealth destroyed by people who misuse the site. Likely, but not definitely.
Today is a rare good day in American corporate life. A company that only could have been thought of and built in a country like America now has the capital it needs. Hopefully Zuckerberg and Co. will use it well, continuing to give users a reason to stay and more easily connecting them to products they want.Jared is a NGJ Voices Contributor and a senior at Tulane University in New Orleans. He was born and raised in North Potomac, Maryland, is an avid Yankees fan, a football and tennis enthusiast, and he hopes to one day have enough money to own a large cigar cabinet. Follow him on Twitter @JBSichel (https://twitter.com/#!/JBSichel) and check out his blog at www.jaredsichel.com