MARKETING PILGRIM -- Feb 5 -- Last week Facebook allegedly leaked its financial projections for the year. 2007 Revenues: $150 million, 2008 Revenues: $300 to $350 million (projected), 2007 Headcount: 450, 2008 Headcount: 1,000 (projected), 2008 Capital Expenditures: $200 million (i.e., servers), 2008 EBITDA: $50 million, 2008 Cash Flow (EBITDA - CapEx): negative 150 million. Facebook has tried creative ways to make money from advertising, but nothing really seems to have taken. Ads work on Google because people are looking for information. However, when it comes to a social network, usage is quite different. People aren't looking for information about products ? they're looking to communicate with friends. BusinessWeek is also focusing on the failure of ads on MySpace. BW looks at a company that had initial success with a 1% CTR in 2006, but whose CTR fell to 0.1% in 2007. "Users became more or less desensitized to the advertising," cautioned the company's former CEO, Mark Seremet. "You won't make money on it."

 Mark Brooks: Hence the reason for Zuckerburg launching the invasive Beacon service. Advertising really isn't enough. Random ads are just annoying. CTR's suck. Something else is needed. I think ultimately ads need to be a service. Google presents relevant ads, and they are a service. Facebook needs to do the same. Present ads that are targeted, timely and 'useful' rather than a random annoyance.

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Interesting...

Some Social networking sites have pure business models based on advertising. Unless they are niche sites, over the long haul it is an uphill battle.

Recurring revenue is the key to winning this market and sustainability.

Few of the ad campaigns you get will renew. Reason: CONVERSIONS. If the conversions are not there, they won't renew. Its pure economics. I spend money...I get less return on my ad campaign...so I don't renew.

Getting new clients costs alot. Keeping them costs little.

From a SN business management perspective, think of it like feeding a hopper. You are constantly trying to find advertisers (feeding the top of the hopper). What comes out of the bottom of the hopper is your recurring revenue, that is advertisers that renew. For this business, few of your advertisers actually renew. (I have no idea what the percentage is, but it must be very, very low).

So most of your company's efforts are to get advertisers. Which means, higher costs.

The online gaming business learned very early that SN sites don't convert. If they are not advertising, that is a warning.

I believe there are options for some SN businesses:

-Niche sites can retain advertisers: These sites have parties that are interested in a single market. Hence, the advertiser can get better conversions. An example would be : A Social Network for Sailing. Sailboat manufacturers and parts would advertise and keep re-upping because of the market.

-Fees for Membership: Linked in charges USD $200 per month for membership. It is a business SN site, and they can command that . There is a Mobile Business Forum for executives in the Wireless industry that charges 1200 GBP per year to join. Again, its business and you have to if you're in the business.

-Services: The more data you have about your customer, then the more valuable your database is to offer services. So you would offer things to customers that have shown an interest in those services. Ex: User likes Kayaking, offer tours for Kayaking, have adds (as an affiliate) for Kayaks, etc.

For some social networks, they have not recognized the ways to monetize what they have. For others, monetizing it will like trying to squeeze blood out of a rock.

Marc Lesnick
Conference Organizer
Social Networking Conference