Virulent Word of Mouse

February 22, 2010

The Facebook traffic juggernaught continues to roll…

Filed under: Capturing and creating value,Short observations — Shane Greenstein @ 6:11 pm
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The two step in “give away” economics is well known. Step 1: Give it away to build a large installed base; Step 2: Turn on the switch and start charging. Which leads me to ask: What does Facebook think it is doing? They seem to have step 1 perfected. As you will see below, their traffic statistics are staggering.

That conclusion is prompted by an observation made on the blog, LostRemote, which tracks new media issues. They picked up on these two facts.

First, Facebook has surpassed Yahoo as the second most popular destination on the Internet. Look at the following graph to see this trend. In the last month Facebook passed up Yahoo, second only to Gooogle.

BTW, this graph comes to us from compete.com, who has a nifty little web-analytic tool on its web page. It allows one to compare any site to any site.

For example, just for fun I compared the traffic at Wikipedia, Ask.com, and YouTube.com. Here is what I got. Cool, isn’t it? According to this, Ask.com is not doing too bad, and YouTube still blows away Wikipedia, at least in terms of unique visitors.

But I digress. Back to Facebook.

Facebook has one other interesting feature. Its visitors spend a lot of time there. According to LostRemote, the fraction of time on Facebook continues to increase. See this graph.

Users spend quite a lot of time at Facebook, once they get there. According to these statistics, it accounts for 12% of the time online of users.

This statistic seems so staggering it seems implausible. If it accurately reflects user orientation towards Facebook, then that site is sitting on a dominant Web hub of information.

Which leads to my last question: Where is step 2? When is Facebook going to turn on its switch and start charging?

Something to think about the next time you log on to Facebook and share with your friends…. Just how does the management expect to make money from so many users who spend so much time on line? And will users like it as much when management finally does begin to try to monetize all that traffic?

3 Comments »

  1. My feeling is that Facebook is on the verge of being able to bill for usage. Specifically, I just noticed a set of TV ads during the Olympics (one for a movie, the other for a cleaning product) where businesses are directing customers to a facebook fan page instead of their website. It makes sense that this would be more valuable for the company…Makes it easy for the advertising to go “viral” users discuss the product, pass it along to their FB friends, etc.

    It’s possible that FB will be able to bill these corporate customers given the value of advertising. My question is – how do they appropriately identify and price discriminate these companies vs. other groups who do not have a high WTP? One hypothesis is they charge customers for using their site in other ad mediums (TV, print, etc.)

    Comment by Matt Seitz — February 27, 2010 @ 12:46 pm | Reply

  2. Is anyone able to estimate how much money Facebook and YouTube are burning through? The cost of installing and operating all those servers is enormous. I remember reading that when Google bought YouTube, the little company was then spending $4 million a month on buying and running servers. YouTube now is many, many times bigger. FaceBook’s American users spend 500 million hours a month on the site. It’s not the resource hog that video is, but that’s a huge amount of resources to support as a charity.

    Comment by Dave Borland — March 14, 2010 @ 1:00 pm | Reply

    • Good question. Facebook already covers its costs, but a big open question remains. How much revenue can they get from advertising without inducing users to leave? Not at all clear, especially for younger and fickle users. YouTube faces a different open question. Last year Credit Suisse estimated that YouTube lost several hundred million dollars because its costs far exceeded its revenue, and for the reasons you state, the cost of sending videos. More recently the site has experimented extensively with commercials for video.

      Professor Shane Greenstein

      Comment by Shane Greenstein — March 15, 2010 @ 9:42 am | Reply


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