May 19, 2012

Facebook's Real Value

This week, many people in the IT Industry have been asking "Where is FaceBook's value", trying to figure out why the company might have such a huge valuation on the stock market (where it's IPO valued the company at over 100 Billion Dollars(!)).

There's two ways to look at Facebook, with regards to its customers.  The first is the adage: "You're not the customer, you're the product".  That is, everyone signed on to Facebook is actually part of the social media empire's product line - that it turns around and sells to advertisers.  Arguably, it is the largest collection of personal taste and demographics information in the world.  I'm not one with the advertising industry, and I have no idea how long it might take to collect the amount of demo data that they have, or how much it can be sold for - but as a data set - it is of reasonable quality.  With that said, advertisers should be aware that people game the system.  That is, more than one account, relationships between people that aren't based on real relationships, but are instead people who are gaming the Facebook friend system for points in some Zynga game, and that people have a tendency to click on buttons on the web JUST to get free stuff.

Personally, my 'like' of Tide laundry soap was more likely based on a coupon giveaway than any real desire or care for the actual product.  About half of my 'friends' are actually just friends because I needed more Cityville neighbors, and I probably have 3 Facebook profiles.  Maybe I'm not indicative of the whole data set, or perhaps I am - but it certainly plays into the quality of the data, even if it doesn't eventually lead to wrong conclusions on the part of advertisers.  Oh yeah - just so you know, I've never clicked on a Facebook ad.  I don't even look to the right side of the screen.

So, what's the benefit of Facebook from the other side?  Well - Facebook has slowly and stealthily become something of an Internet authentication authority.  Signing up for membership on some new website?  It's likely made easier by a button that says 'Sign on with Facebook' on that site.  Why re-enter all of your demographic data when you can just authorize the site to go and get it?  The user convenience of a central authentication portal is pretty powerful, and Facebook has made it oh-so-easy for developers to integrate their 3rd party authentication into their websites.

There may even be a business model in it for Facebook eventually - perhaps charge people for strongly authenticated Facebook identities (ones that use OTP token devices) and extend the service to places like banks, utilities or bill-pay services.  Or, start charging web developers for Facebook integration - frankly, I'm surprised they haven't started doing that already - although free is the fastest way to build your userbase.

Eventually, Facebook is going to have to figure out how to turn a profit that's big enough to hold it's stock price afloat.  What are your thoughts on how they will monetize their application platform?

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