So, if Facebook decides that it wants users to see more video applications and less social readers, BOOM, it happens. In late April, Facebook made some changes to Timeline and next thing you know, Viddy and Socialcam are taking off like crazy and the Washington Post and Guardian social reader apps tank. If you're in the media, that should scare you. If you're Facebook, it's just another sign that you're in the driver's seat.
Note, too, that Facebook now knows precisely which publications and applications are doing well. Think that gives them an advantage in the public relations and acquisitions games?
Let's return to where we started with Paul Kedrosky. Here he discusses monetization with refreshing simplicity:
This is a two-dial company: You can grow users, or you can grow revenue per user. (Or both, of course.) Growing users is doable, but getting harder given increased saturation in existing markets. Further, it's obvious Facebook is having some ad inventory issues with respect to putting enough quality ad content in front of people, especially on mobile, so that's causing some of the per-user revenue slow down we're seeing.
Is the current dollar per user figure at Facebook a likely ceiling, floor, or average? It's almost certainly a floor, given that Facebook hasn't done much to monetize its traffic, beyond slapping ads against it. That means the current $2-ish /user figure that gets bandied about almost certainly goes higher, and if it, say, doubles in four years, that's an extra 18% juice in the revenue model on top of whatever subscriber growth the company gets.
How do you grow revenues? My guess is it's mostly ads -- more in mobile, smarter everywhere else -- but it's also getting into transaction curation. Look at Pinterest, Svpply, etc., to get a sense of how community, or at least a sub-community, is becoming very active in helping one another make purchases. That is easily fee-linked, and then you have another dial to turn in growth per-user revenues.
To recap: A natural monopoly is still an invaluable advantage. The largest social media site is still the largest social media site. The site is still growing quickly across the globe. One in every five page views on the Internet is a Facebook page -- and vast portions of the traffic that flows to other sites around the Internet is channeled through Facebook. If you think the Internet is valuable, then you implicitly think Facebook is valuable, too.
Other systems may be possible -- social networking may decentralize or transform in an unforeseen way -- but let's not let 10 days of share price fluctuation blind us to Facebook's unprecedented accomplishments. Not least because an accurate representation of their market power is necessary to hold them to the right standards of privacy, responsibility, and fair dealing.
Department of Omissions: We did not go into Facebook's possible role as a payment method. There's much to be said on this topic as an alternative monetization strategy as investor Eghosa Omoigui pointed out to me on Twitter. Also note that it will be the subject of an upcoming story.