Brian Feinstein

The Facebook backlash has subsided and financials demonstrate a decent P&L and healthy balance sheet. The company is at interesting juncture. After a series of high-profile announcements (Platform in May and Beacon in November), the company has been relatively quiet about its plans for the future.

First, it is important to point out that Facebook is growing at breakneck speed. ComScore’s comparison of Facebook and MySpace global uniques says it all:

Source: TechCrunch.

Second, Facebook has yet to show its hand on the monetization front. Social Ads suffered from a little too much hype and some early privacy mistakes that most people outside of the blogosphere never heard or cared about. It should be seen for what it was– a bold move and only the first step in an interesting direction. I’m going to borrow from everything I’ve read over the past few months and try to break down five areas of future Facebook monetization (apologies for not remembering sources):

1. Micropayment processing. Facebook sets up its payment infrastructure so that users can easily pass money through their bank accounts. This helps process any e-commerce (e.g. Fans buy music off Facebook Pages), helps application developers make money (e.g. I buy a t-shirt that my friend designed off his Zazzle Facebook app), handles Marketplace transactions (see eBay), helps friends collect money from another (believe it or not, this is a substantial part of Prosper and PayPal’s activity), and facilitates any other type of financial activity. Source: Not quite sure. Maybe Lee Lorenzen.

2. Facebook as the new Portal. Facebook becomes the universal start page for the web, providing all forms of online media consumption and web applications through an increasingly robust Facebook Platform. I won’t belabor this point as Terry Semel has been harping on this for years but this would include news, music, email, calendars, collaborative applications, blogs, gaming, information gathering, and so on. The idea is to make these activities more compelling on Facebook that they would be as stand-alone destinations or applications by overlaying social data. This may feed activity back into Facebook (e.g. Scrabulous, Facebook IM clients, iLike, etc.) or Facebook may choose to feed its data back out (e.g. New York Times homepage powered by Facebook). Source: TechCrunch, VentureBeat and maybe Van Natta’s pithy line, “Take anything today on the Internet and overlay a lens that is the people you know and trust.”

3. Internal and third-party advertising network. Some mixture of performance-driven advertising that leverages network activity with relevant advertising (Social Ads is just the beginning) and brand-driven advertising network that leverages Facebook’s user data and social behaviors to deliver relevant brand advertising (not necessarily based on friends’ activities). If Facebook can provide performance marketers with an ROI that is better than existing CPC/CPA networks and brand marketers with brand lift (or whatever DynamicLogic measures) that is better than existing CPM networks, then it’s got itself a nice meal ticket.

4. Empowering Facebook users to make money. Just like Google built an industry around AdWords and AdSense, Dave McClure suggests that Facebook could built an industry around its News Feed (FeedSense). Users would earn money when their activity is promoted to their friends via News Feed, Social Ads, or any future Facebook advertising network. This would give users a reason to turn Beacon back on and in the event that it became socially acceptable to do so, could provide a nice revenue stream from self-styled influentials (Watts’ research on the gatekeeper model could have a negative or positive impact, depending on how a FeedSense culture develops).

5. Social search. More on this in three days.

Finally, let me just say that the usual excuses for prognostication apply. There’s a high probability that I’m missing or misrepresenting Facebook’s gravy train, that it took Google nearly four years to come up with AdWords, and that if I did have the answer to Facebook monetization, I’d be sitting in Palo Alto with Chamath Palihapitiya.

In my next post, I’m going to talk about social search– which for me personally is the most enigmatic of all the Facebook revenue possibilities that are being bandied about.