Google Plus has ensured that Facebook cannot make money


Google+ may fail … it may not succeed in weaning away enough users from Facebook…

…But what G+ has ensured is that Facebook will not be able to make enough money to justify its current market value of US$ 100 billion.

Why so?

Let us do a quick back of the envelop calculation.

  1. For Facebook to justify it current valuation of US$ 100 billion, it needs to, at some point of time, make an annual profit of at least US$ 10 billion.
  2. That can be done only if they have annual revenue of around US$ 30 billion.
  3. This revenue number is about 15 time their current annual revenue.
  4. The user base and the level of usage cannot keep growing indefinitely and will saturate at some point of time. Let us assume that it saturates at double the current level.
  5. That still means the revenue per user has to increase 7 to 8 time the current level.
  6. Even assuming that enough organizations are ready to divert their ad budget to Facebook – where will the ads be shown?
  7. This can be done either by dramatically increasing the click through rate or by showing significantly increased level of advertisement.
  8. People don’t go to Facebook to search for things – they go to Facebook to check on friends. So, significant increase is click through rate is highly unlikely.

Would you stick around in Facebook, if they start showing significantly larger number of ads?

Especially when an interesting alternative in the form of Google Plus is around?

Do you remember what Microsoft did to Netscape?

Before 1996, Netscape used to rule the browser world. However, Microsoft changed the whole game by making IE good enough and giving it away FREE. That ensured Netscape could not make any money from their browser. You can read the rise and full story here.

Microsoft did not have to make any money from IE, so Netscape really did not have a chance.

Google – Facebook story is going to be similar

Google does not have to make any money from its social media initiative. It gave away Android free just to ensure that the mobile platform remains open.

Google probably needs to spend less than a billion dollar annually to keep the social networking initiative going. They can easily do that without any ads appearing. Look at how they handled YouTube.

If Facebook pushes too hard for revenue and profit margin they would land up handing the whole game over to Google.

However, Facebook can survive and continue to thrive if they can get rid of all those people who think that the Facebook IPO is going to be a goldmine.

Comments
13 Responses to “Google Plus has ensured that Facebook cannot make money”
  1. rony says:

    Google + is getting popular day by day and it will help to build marketing business.
    http://www.earningfair.com/1108/make-money-from-google-plus/

  2. Radford says:

    I disagree with alot of this and these are mostly anecdotal points at best. #1 social-based advertising is totally different since the marketers potentially become part of the conversation #2 How people share (and how often they share) is a more relevant statistic than say the number of people reg’d on FB. http://blog.sharethis.com/2011/07/07/the-law-of-sharing/ #3 More advertisement does not equate to better engagement – that’s old thinking. In fact, FB allows you to close ads you don’t want.

    The one thing G+ did is validate that social networks are here to stay but to say that they directly affect the valuation of Facebook is far fetched. The only reason why they’re getting overvalued because speculators know nothing about social networks. All they see is 800 million registered users – as opposed to how they engage with shared media.

    Netscape suffered more from bugs/featuritis than just MS embedding IE into Windows as the default browser. Many developers (including myself) supported Netscape for the longest time (during the olden days) but it was just one big mess as they kept lagging behind web standards with horrible support.

    • deepeshpc says:

      What if the Google+ becomes a huge hit…Will that make the Facebook fade away…Just like Facebook’s rise gave way to the fall of myspace, orkut,bebo etc. Looks like the online world accomodates only one social networking king.

  3. deepeshpc says:

    But with the Microsoft-Skype-Facebook ecosystem…they could still remain the ‘alpha dog’ in the social networking world or they could just fade away like myspace

    • Udayan Banerjee says:

      Yes, but even if they remain the “alpha dog”, can Facebook justify its current valuation?

    • Vikas Nair says:

      The google-android-google+-picasa-youtube-googledocs ecosystem is much more powerful that the MS-Skype-Fb ecosystem… I believe integration and mobile communication are the reasons why FB will lose ground to google… after all, android will be the next microsoft of mobile devices (in terms of monopoly)

  4. Kartikiran says:

    Udayan, nice analogy to netscape…- Kiran.

  5. Sushant Ashu says:

    nice 1

  6. Lata says:

    Great Post. But disagree with the last line!!

  7. Interesting take on the whole G+ initiative. In the absence of any news from Google on any plans to monetize the G+, lends credence to the whole story

Trackbacks
Check out what others are saying...
  1. […] is really an event that did not happen. Why did it not happen? Is it due to the launch of Google+ which spoiled the party, or the informal valuation of Facebook already too […]



Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: