One-Third of All US on Facebook, Yet Users are Worthless?
First of all, I don’t hate Facebook anymore than I dislike any internet fad. One of my 30,000 readers asked me why I always write negative things about Facebook. First of all this isn’t quite true, since I’ve written a few articles about how to make money on Facebook and the top ads on Facebook. I just like to question what is going on, look beyond the headlines and the spin. So, in that light, I want to examine the numbers: According to Comscore, in June, over 130 Million people within the US used Facebook. This is about one third of the population of the US that uses Facebook – some of them day after day, many times a day, making it one of the most popular media sources ever in the history of the world. However, despite this, Facebook may only make $1 Billion this next year, even with expected growth. This may seem like a lot money, but it’s actually not – and I know why.
The Superbowl gets around 100 million viewers each year. While the number goes up and down, it’s a good round number for this post and makes it easier for me to do the math. According to my research (google) there was last y ear 62 ad slots sold at between $2.5M and $2.8M. That’s at least $155M in revenue, perhaps even as much as $175M in revenue for whichever network broadcasts the superbowl. That means each viewer is worth at least $1.50 for the Superbowl. In contrast, the number $1 Billion estimated in Facebook revenue is for their 500 Million (and growing) users throughout the world. While I can’t find any numbers that say how much revenue is generated in the US and how much is generated internationally, I’m going to make a conservative guess that at least 90% of the revenue is US based, meaning that next year $900 million dollars is expected to be made from Facebook. That means that each US user, over the period of the year is only worth about $7.00 for the entire year.
That is a ridiculously low number if you think about it. Viewers watching a several hour football game are worth 21% of the value of a Facebook user who may use the site 365 times plus a year, spend at hundreds of hours a year talking to their friends and family, and more importantly interact with people of similar interests, communicate their needs, buying habits and much more. If you translate the value into hours of use of a Facebook user compared to a superbowl watcher, an hour of a Facebook user is insignificant – I can’t even do the math, but you are talking about hundredths of a cent per hour for each Facebook user compared to around 50 cents per hour per superbowl watcher.
The value comparison here is hard to believe, in light of all the media coverage about Facebook. This raises two possible sets of questions. The first set of questions asks what the real value of an internet user is. The second set of questions would ask why we can’t monetize those users. If we concentrate on the first set of question, we would come to conclusion that internet users, especially Facebook have little value financially per user. That the only reason that Facebook has any value is because of press coverage of the substantial size of the user without comparing the users actually value. When you look over the value of broadcasting corporations in comparison to their revenue, the inflated difference is great.
The second set of questions interests me a great deal more, because it might have two subsets. The first question is to ask easy it is to acquire users for a social networking site (and thus lose them like myspace) and thus how relatively cheap their value is. We are estimating the value of Facebook at 12 billion, although the majority of those users have only been on the site for less than a year. They have no loyalty, they have no value beyond that time – any significant change in facebook, or the rise of another more interesting social networking site could immediately doom the value of facebook. Their value when it comes to advertising is clear – I’ve pointed out that so far, their value is insignificant per user.
So, now the important question: why are these users so useless, and why can’t we monetize them? Why hasn’t interactive advertising advanced far enough that it can actively engage users and create both branding and direct response experiences for social users that equates to actual value? This is a very significant question for anyone who is looking at the development of advertising on the internet and the value of social networking to advertisers. We can believe that either we haven’t learned how to monetize these users and we will very soon, or we can believe that the value of a social networking user is useless. This is probably the most important question of our time when it comes to the economy and its relation to advertising on the internet.
I believe the issue is simple: we need to be considerably more creative (as does facebook) about advertising on the internet. After 10 years of substantial growth, we still depend too much on display advertising in the form of 728×90 banners. I remember in 2000 being introduced to some of the rich-media expendables that are still in place. Facebook, on the other hand, still depends completely on CPC text advertising for its revenue. Here is the good part: this means whoever finds a way to be creative can monetize these users significantly. I am of the opinion that the Faceook user’s current value is less than 1/100th of what it could be – that for every dollar made now, within the next years someone can figure how to make $100. Whatever this might be, I’m not sure – but it does mean that monetization of users needs to be beyond the CPM, beyond the CPC, and start to use possible metrics and systems that we haven’t even thought of.
Thoughts?
10 Responses to “One-Third of All US on Facebook, Yet Users are Worthless?”
Leave a Reply
(C) 2010 Pace Lattin. It is the policy of this blogger to not edit or remove any content and comments, unless it is specifically attacking a protected group or irrelevant to the conversation, such as a spam. These are the OPINIONS of the respective writers, posters, commentators. All DCMA Notices shoudl be sent to pace@pacelattin.com
I believe that we as online viewers have become very good at narrowing our focus on the content we seek. So to break through you must be able to inject content into areas of focus. In the case of Facebook this can potentially be accomplished through word of mouth promotions. Of course these can be very challenging and difficult to generate for sure.
I think what you are failing to take into account is the amount of growth that Facebook has seen over the last three years. Part of the problem is companies that want to use this as a marketing platform are not even yet figuring our the game on how to use the platform. I think we are still in the early adopter stage for companies that are using Facebook effectively. Your $7.00 figure could easily triple in a very short period of time once the end of the Facebook train catches up with the engine.
Brilliant observations.
One problem in most business settings is myopic vision of ‘what works.’ If something ‘works,’ there is little incentive to change it and often greater incentive not to even risk trying. Said another way, ‘don’t rock the boat.’ What Pace so correctly points out is that while everyone is safe in their little row boat, they could be captaining a 120′ yacht.
Social networks and being social is great – to a point. The underlying weakness of Facebook preventing it from being a $100B giant is lack of focus which, in turn, leads to lack of loyalty as Pace notes.
A deeper debate for me revolves around exactly what a ‘social network’ really is. I think the general media has muddied the term just as it has with ‘virtual reality.’ True VR is a completely immersive event. Don some goggles, get on a treadmill (or get in a cage ball) and you begin to experience true VR. The media has co-opted the term VR to now mean any 3D walkthrough (or fly through) on a 2D screen. What really then is a ‘social network?’ One could argue that a baseball park filled to capacity is a ‘social network’ as well. It’s even more focussed than Facebook because everyone is there to cheer for their club. I’m ‘connected’ to the friends I came with, a few more people I happen to know that I run into, and even to some extent the weird guy in the stupid hat that just won’t shut up. On a CPM basis, I’m worth a ton to MLB. Not because I’m part of a packed stadium but because I’m a committed fan. I buy hot dogs, beer, giant pointy fingers, and ball caps along with my ticket. I watch games at home and listen to them on my radio (further revenue streams for MLB). The key to monetization isn’t the social part, it’s the commitment to the game.
There is also a corollary issue to that of commitment — focus. What’s the focus of Facebook? Gathering more friends than your friends? Staying ‘connected’ with 200 of your closest friends? Most people I know that regularly use their Facebook accounts don’t have enough time to interact. Where are they going to find time to view ads? By contrast, sports franchises get you hooked on the sport then sell you stuff to reinforce that commitment. Think about it. Why are they called ‘ballpark franks?’ I doubt you’ll ever hear of ‘Facebook fries.’
I think you are missing the main point of all this "internet" thing. The superbowl is not the internet. You can’t compare Starbucks with General Electric…
It’s just a different model. Economies of scale is the center of any internet-based business. The outcome is lots of users generating small revenue, coming and going with low effect on revenue.
In the long term, you get a nice and profitable business. Just like Google has done.
As some of the other commentators suggested, I believe it’s just a matter of time. How much was a Google user worth in 2003? How much is a Google user worth now? There’s a learning curve even for experienced internet marketers, not to mention a lack of trust and credibility around Facebook’s marketing potential by business owners (even though the numbers are as convincing as they are).
Pace IMHO your take on this is brilliant and accurately articulated. The questions you raise are quite thought provoking. Always like your POV even at times I disagree. Take a look at what Ford Explorer is doing on it’s latest Facebook plan to unveil it’s new explorer: http://reviews.cnet.com/8301-13746_7-20011468-48.html. The big Brand outcomes over the coming year resulting from their FB investments will determine it’s viability in the marketing world.
Traditional banner ads and display don’t work inside social networks because the
social currency is sharing, not searching. The corresponding analogy would be attending someone’s birthday party and bringing along your tupperware display to sell during the event – tacky, not relevant, and superfluous to the event.
To succeed in advertising inside social media the brand has to become part of the
conversation, to be engaged with the group at the time the relevant topic is being
shared. Until recently this technology did not exist.
a bit biased view of the whole thing I am afraid. The reason why ads on TV get such a high Revenue per Viewers is because can’t be really measured (if they could translate those $$ spent in actual sales, I guarantee you they would be paying much less). Give me $2.5mm and I will make a HUGE 1 day branding campaign online (including Facebook) for 1 day, heavy target (the person you want when you want it), translated to direct sales, higher brand awareness and overall growth of brand and company good will.
The problem is that this is not as easy to do as putting the ad on the SuperBowl, requires analysis and optimization of the work. Marketing Execs tend to be lazy and afraid to invent.
BTW, you are not including here how much it costs to make the ad piece, in some cases, more than buying the ad space.
I have been advertising my website in the Facebook ad system for over a year now and watched their CPC bids rise 500% for my target demographic. Two years ago I watched Google's CPC bids rise until I could no longer afford them.
FB ad revenue will continue to climb and I predict that in a year it will surpass Google's ad revenue, which
I think will be going down as advertisers shift to FB.
I think FB also has a huge value based on the amount of user data they collect.
This is an interesting article, and a subject that caused quite a stir with our executive team. In my experience, monetization has only increased when ad density and interaction increase. This in turns allows for a less market laden competitor to come in and win over users and compete. Facebook has been smart to limit their ad model to this point to increase user base and consistency. However, it doesn't solve the problem on how to increase their per user revenue into a profitable model.
Another interesting point mentioned in the comments revolved around hidden benefits of advertising. Companies that look to be long term, legitimate product or service sellers look to become market segment leaders in strategic verticals as a common growth strategy. To do this, sales is only one part of the battle, with brand awareness being a critical step to segment domination. Brand leaders and contenders spend to maintain or try to win segments and verticals, and using repeatable brand imaging is key to this battle. For example, buying the naming rights of Fedex field may never create enough business to justify the cost, but the effect of brand image is powerful.
I hear the argument, "this is the internet, it's different here" all the time. I just don't believe it. The money behind the internet is the same as every other business in the world, connecting consumers to providers.