Facebook finds a new way to monetize from their business - Image Courtesy Facebook
Facebook’s achilles heel has always been how to monetize its traffic. Granted that Facebook does get gobs and gobs of traffic, a huge chunk of the content consumed on the internet is done within the walls of Facebook. Facebook has 800 million installed users and a large chunk of those are active. This make for great numbers, even eye-popping numbers. The sad reality, however, is that looking beneath the surface of these numbers paint a somewhat murky picture of whether Facebook can translate the hype and promise of social traffic to cold, hard cash. The sad reality is that while Facebook has a huge number of daily views, visits and traffic, much of that traffic comes from developing countries that are targeted with lower value ads. Moreover, the fastest-growing segments of users on Facebook access the service through a mobile device. Facebook does not have a mobile ad strategy, currently; and there are no ads on its mobile presence. While it is experimenting with sponsored stories, the jury is still out regarding how effective this model would be. Twitter has also experimented with this model through its sponsored tweets ad offering. Still, the picture is clear and Facebook’s monetization strategic needs are quite obvious. It needs to generate a lot of money from as many sources in order to subsidize its heavy use all over the world. The hard financial reality underlying Facebook is that the cost of servicing a user from a developing country is the same as the cost of servicing a user from the United States, Canada, Australia, Europe and other developed economies. The challenge is, while the advertising value of users in developing countries is not as high as those of developed countries, their cost is the same. In essence, developed economy users are subsidizing emerging countries’ users. A large share of those emerging countries’ users is accessing FB through a non-ad platform; in other words, mobile devices.
See, what’s wrong with this picture? This is the fire that is lit under the behinds of the strategic brains behind Facebook, to quickly find ways to monetize the huge bulk of traffic and usage of the service. That’s why Facebook investors and observers, alike, should applaud Facebook’s recent decisions to allow app developers to offer subscriptions through their apps. Facebook is now allowing app developers to charge their users for subscriptions and in exchange, these developers would stop using Facebook credits for users’ purchases inside the app. This all translates to higher revenue for Facebook. This is a great move because it allows Facebook to generate income as a background provider for highly popular applications. This takes the Facebook content and service partnership model with app developers to the next level. The current partnership is structured this way: App developers create powerful applications that generate a lot of interest and a lot usage; because of the added value, there is a higher loyalty to Facebook users. They have more reasons to go back and continue using Facebook and when they buy items from the applications using Facebook credits, Facebook gets a nice chunk of change. This relationship, by allowing currency would streamline payment methods and also more deeply integrate Facebook’s payment support system so it can get a nicer share of applications’ revenues, everybody wins. It’s easier for the consumer to buy things; the ease of purchases allows the developers to make more money and of course Facebook makes more money. By pursuing this win-win-win type of arrangements, Facebook shows that it is truly committed and very proactive in finding ways to convert as many of its service and application offerings into revenue centers. Considering its growth rate and its cost per active user, it needs as so much revenue as it can get.