The current economic engine for much of the Internet is advertising. This includes Facebook:
Facebook’s first experiment with paid ads was a flop. In 2007 it rolled out Beacon, which broadcast information on Facebook about users’ activities and purchases elsewhere on the Web without their permission. Facebook pulled the program after settling a lawsuit brought on behalf of Facebook users.
This time around, company officials appear to be proceeding more cautiously. David Fischer, Facebook’s vice president of advertising and global operations, says Facebook delivers ads that are relevant to users’ lives.
“This is an opportunity for brands to connect with you,” Fischer said. “When someone likes a brand, they are building a two-way conversation, creating an ongoing relationship.”
A lot is riding on getting it right. Last year, online advertising in the U.S. grew 15% to $26 billion, according to the Internet Advertising Bureau.
People familiar with Facebook say its ad revenue doubled to $2 billion in 2010, and is expected to double again this year as more major advertisers including American Express, Coca Cola and Starbucks climb aboard.
In February, more than a third of all online display ads in the U.S. appeared on Facebook, more than three times as many as appeared on its closest competitor, Yahoo, according to research firm ComScore Inc. Facebook’s moneymaking potential has wowed investors. Its market value is estimated at $55 billion on the private exchange SharesPost.
This should really be no surprise to anyone. As others have noted, the real magic of Facebook is not in the personal connections people can maintain but rather is in the information that users willingly provide. Moving forward, the trick will be for Facebook to do this in such a way that a majority of users don’t become upset.
I find the language here to be particularly interesting: users are entering a “two-way conversation” and an “ongoing relationship” with corporations. This is what corporations want but if users/consumers really thought about it, is this what they desire as well? While the user pays for particular products (and perhaps is willing to advertise a product for free), the corporation provides functionality but perhaps even more importantly, status and prestige.
I’m also struck by another thought: this article suggests that Facebook still has a lot of financial potential due to advertising. At what point does Facebook hit a wall or lose its momentum? In a short amount of time, Facebook has become a daily feature in the lives of hundreds of millions but there is little to suggest that their growth is unlimited.