Facebook May Be Growing Too Fast. And Hitting The Capital Markets Again.
techcrunch.com
techcrunch.com
Promotional leverage aside, the freemium model seems to frequently drown in a big hole of gluttony. And the point at which you try and change your model, often creates negative backlash from unappreciative consumers.
Certainly in retrospect it's easy to point out Fb's faults... but I feel like they should have limited free accounts unless you were a subscriber. Only paid members can create groups, pages, etc... but free members can join as many as they'd like. The social benefits still remain in tack, Fb is compensated for all this data storage, and helps curb pollution in the Fb community.
This is why LinkedIn's ability to monetize is so important. Facebook has already raised half a billion and will probably need to raise that amount again to survive until it comes out with its business plan. According to the TechCrunch figures, they're loosing $142M/year (dangerous assumption, I know).
At that point, maybe Facebook can become profitable, but how profitable? I don't really feel like running net present value calculations (maybes someone else can), but when you're talking about VC of $1B and the better part of a decade before profitability, you quickly see how much someone has to make to actually be a worthwhile venture. Maybe Facebook will start making billions per year. Maybe Facebook just won't be able to monetize their traffic (to a profitable level).
The fact they are looking for money now is a good sign they understand the problem, but if that does not quickly pay off they need to think about cutting down their costs. Even if it damages their growth.
However, what happens when your friends decide, "screw this, I'm out"? All of a sudden, those connections that you were paying for aren't there anymore. At best, I'd say Facebook could get 50% of its users to pay for its service. Once half of those connections are gone, the service isn't worth as much to you. Likewise, as users leave, so do their photos. Again, you're in a situation where Facebook's value is being lowered for you.
That's what's so hard about pricing. Facebook is worth $10/mo to you. It isn't worth that much to others. However, it's only worth $10 to you because of the other people on it (many of whom wouldn't pay that). Which means that if Facebook starts charging money, suddenly it isn't worth $10 to you because much of the content from other users (their profiles, your connections to them, their photos) is gone.
There's a critical mass issue. Even if you say something like, "well, they could charge for premium stuff like the ability to say who gets to see your profile" which is free now. In that case, lots of users won't post content as freely and the service looses some amount of its value.
So, Facebook really doesn't have the opportunity to charge people because once it does, the value goes down as the more marginal users are no longer there.