The admission by Facebook chief executive Mark Zuckerberg, that the social network's optimum revenue model remains a mystery four years after its launch, has raised some eyebrows.
Despite claiming that it will double its revenue to between $300m and $350m this year, the question remains as to when, if ever, Facebook will turn a profit.
Zuckerberg claims that growth of the network is the primary goal, and revenue secondary. He argues that social networks cannot be turned into money-makers in the same way that search is. But Mark Howe, country director of UK sales at Google, suggests this is a weak excuse. 'A large-scale site with an attractive and attentive audience that values the time it spends there has the opportunity to make money,' he says. 'If social networks are not making money through advertising, the only other model is the unsuccessful subscription model of the 1990s. I believe in the value of advertising. If ads are targeted and relevant, consumers will not reject them.'
Many in the online sector argue that consumers do not want to see advertising in their online communities. Geoff Ramsey, chief executive of eMarketer, claims people have 'banner blindness' when using social networks. However, Howe says people accept ads online just as they do in commercial television. 'It is a na•ve community that thinks the technological infrastructure that allows the business to exist does not need to be paid for somehow,' he adds.
Hitting the target
Rival network MySpace is beefing up its ad services by launching Hyper-Targeting in the UK this month to index consumers' interests and provide demographic insight. Anthony Lukom, managing director of MySpace UK, says Zuckerberg's contention that social networks cannot effectively be turned into money-spinners is wrong. 'There absolutely is money to be made in social networking,' says Lukom. 'We take 55% of social network adspend globally. MySpace makes money because, from the start, we wanted to be a profitable and sustainable business. We do well in display and in brand integration with initiatives such as Mars Planets Radio and the Trident comedy awards. We have worked really hard on how brands interact with consumers and have been innovative in this.
Facebook has also been pursuing more targeted advertising initiatives, launching the Facebook Ads referrals system last year and expanding its third-party ad sales deal with Microsoft internationally. Andrew Walmsley, founder of digital media agency i-level, says: 'The price of its advertising reflects the perceived effectiveness of its ads. It is very cheap. Facebook does sell boat-loads of it though, so that compensates to some degree.' The site has also tapped into additional revenue streams such as virtual gifts, which friends buy to send to each other. Facebook's commercial efforts have however led to a number of mistakes along the way. The site's Beacon ad system, which shared people's purchasing activities, caused considerable controversy on the issue of privacy, leading Zuckerberg to apologise and add an opt-in feature. More recently, hundreds of thousands of Facebook's 100m users worldwide have united to protest against its redesign.
Another of Facebook's rivals, Bebo, now owned by AOL, has carved a unique position by focusing on entertainment and TV content. Mark Charkin, Bebo's vice-president of sales and advertising, says networks should be used to engage with consumers on an ongoing basis, rather than for a one-off campaign. 'For marketers, we are not a social media tool in isolation,' he explains. 'Brands are integrated into profiles and content.'
Michael Aneto, head of media planning at AKQA, agrees that brands' view of social networks has changed. 'The focus is starting to be put on results,' he says. 'There has been experimentation; now clients want to know what it is doing for them.' Aneto adds that it is difficult to assess the scale of marketing on social networks because it is so fragmented. 'Our challenge is to put our work at the forefront,' he says. 'Zuckerberg's statement that revenue is not the priority is not a cause for consternation, more a challenge for us to create more engaging content.
Social networks
Site Unique audience Active reach
Facebook 14.2m 39.8%
Blogger 6.6m 18.5%
MySpace 5.7m 15.9%
Bebo 5.0m 14.1%
Windows Live Spaces 3.7m 10.3%
Friends Reunited 3.6m 10.2%
Source: Nielsen August 2008 (UK figures)