When Facebook released their S-1 announcing their intent to go public, Mark Zuckerberg left no doubt in anyone’s mind they have taken over our digital world. According to Hitwise, Facebook now accounts for 1 in every 5 pageviews on the web (in the U.S.). It’s crazy to think Facebook wasn’t visionary in the revolutionary sense of the word, they just recognized the world needed a real directory of people, not merely another site to attract users. And indeed, they nailed it. The goal of making its social graph portable and fundamental to the fabric of the Web – and your virtual identity – has certainly been realized.
But can Facebook extend its reach outside the wired world and into your real world? Actually, I don’t think that’s the right question to ask. Maybe the better question is “HOW will Facebook extend its reach into your real world?”
It would seem they are on a tear and the facts are staggering. Hitwise found Facebook.com is now seeing one out of every eleven of their visits coming from the U.S., and 1/5 of all pageviews online in the U.S. takes place on Facebook.com. Their monthly actives grew 21% over the past four months. They are now seeing about 850 million users each month, with half accessing on their mobile device. In 2011, they earned almost $4 billion in revenue and of that, exactly $1 billion was profit. In the S-1 filing, Zuckerberg even goes to the lengths of declaring their intent to fundamentally rewire the way the world works, from interpersonal interactions to commerce to even government.
Facebook’s current revenue is driven mostly by advertising, and analysts are postulating about what exactly led Facebook to IPO. Maybe it’s a desire to steer where advertising is going, to hopefully make it more personal and relevant for consumers. But make no mistake, Facebook is already one of the most valuable companies on the planet because of the information they gather. Age, gender, current city, hometown, employers, education, friends, interests, and now in-app activity and commerce habits are all reasons Facebook is worth an estimated $100 billion.
Yet advertising might not always be their bread and butter since it can only take you so far (just look at what other businesses Google is trying to create) and diversification is the name of the game if you want to protect your longterm business.
This brings us to a natural progression in the digital ecosystem – from advertising to payments. Within the S-1 they revealed their virtual Payments business is already bringing in $557 million in revenue per year. From the filing, Facebook writes that “we may seek to extend the use of Payments to other types of apps in the future.” Although not specific about these other apps, one could think they could include anything that somehow integrates with Facebook.
So it would seem Facebook is on pace to take over the world….. except one big side note, the mobile device. Analysts and the media are already pointing out Facebook has discovered their Kryptonite, which would be the fact that even though almost half of all their users are accessing Facebook from their mobile device, they are generating almost zero revenue from mobile usage.
Facebook risks being left behind as the world turns more of their attention to their mobile devices. Also found in the S-1, Facebook goes to great lengths to admit they have no current way to monetize mobile “We do not currently directly generate any meaningful revenue from the use of Facebook mobile products. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers…our revenue and financial results may be negatively affected.”
So while Facebook sees mobile as critical to its future growth, the growing number of people accessing the social network via mobile devices (again, 450 million!) could negatively impact its advertising revenue unless it is able to begin monetizing its mobile usage.
This should not be taken lightly, as anyone in the industry knows mobile is growing at a rapid pace and it’s only going to accelerate. Techcrunch cofounder and guest author Keith Teare, who is General Partner at his incubator Archimedes Labs and CEO of newly funded just.me, eloquently puts it:
The reason this risk factor jumps out of the page – for me – is that this trend to growing mobile use is inevitable. What is more, it will be both rapid and enormous. How do we know this? Well, human beings are flocking to mobile platforms in droves. This is happening to such an extent that Kleiner Perkins partner Mary Meeker went on the record almost 1 year ago to say that we are now in the 5th major technology cycle of the past half century (mainframe; mini-computer; desktop; internet and now mobile) and that mobile traffic will “grow 26 times over the next 5 years”
Mobile is The Final Frontier to Our Real Life Identity
It has been determined the most valuable network in the digital world is all your personal connections, collected and put together to form the social graph. Expansive and data rich, this network connects you and me in a way we never would have been able to do before Facebook hit our screens.
But offline, this is not the case since transactions are the fullest expression of commercial interaction. Offline, the most valuable network is comprised of all the loose connections of merchant/customer relationships around the world, all together representing the GDP. Broken down to each individual, possibly named the commercial graph, one can start to see patterns and degrees of separation forming.
The mobile device is the most direct and personal connection between our digital world to our physical world. We carry them with us all the time and feel naked if we leave them at home. Their use history is a picture perfect snapshot of who we are, made complete with our media and content preferences in addition to our personal calling and messaging history. Your cell phone contact history is, quite frankly, your true and actual real world social network. The location information (what is seen and not seen by the public) draws a direct path of your everyday footsteps. Like it or not, your mobile device is the crystal ball into your existence – a pure blend of your virtual and physical self.
Yet, Facebook has not figured out how to crack that crystal ball. Yes you can access Facebook proper via your mobile device… but it is still within their digital walls. I am curious as to when Facebook’s tenticals will reach outside those walls and into our physical world. And more interestingly, if not Facebook… then who else will it be?
We Express Relationships With Businesses Via Transactions
In the physical world, the truest expression of our commercial relationship with a businesses is through transaction. If I like a product, I don’t push a button on the shelf right by where its sitting, I buy it. If I am attracted to a city and want to stay at a nice hotel, I book the room. Wouldn’t it be great to directly connect with merchants we care about in our life to make those interactions and transactions much easier? Wouldn’t it be great if it operated similar to what we have become accustomed to in out digital social worlds? Unfortunately, we cannot indicate a preferred long term relationship with a merchant, both interactional and transactional, driven through our mobile devices (Not yet that is).
With more than 8 trillion text messages sent last year around the world, and the U.S. alone seeing more than a fourth of those messages, messaging is the most predominant use for our mobile device. Research suggests messaging is still growing and arguably this won’t change for the foreseeable future. What if texting wasn’t just meant for communication, but also designed for transaction? It has been estimated that worldwide mobile payments (m-payments) will be over US$1 trillion by 2015. That is one BIG market if I have ever seen one. And a market any serious digital media company should be focused on.
So if mobile is only going to be more important as time goes on, if our real world identities are tied to our mobile device and if transactions are the most valuable market in the world, it would make sense the next war for supremacy lies right where those three battlefields intersect.
Anyone want to suggest what Facebook has in store in the coming years to deliver returns for their shareholders? If their goal really is to fundamentally rewire the way the world works, from interpersonal interactions to commerce to even government, they need to do more than just show us ads in our news feed.
The advantages to going public at $100 billion is everyone who was a shareholder “before” the IPO will make a nice return on their investments – both time and money. The downfall of going public valued at $100 billion is that for anyone who is a shareholder “after” the IPO is going to need to see that valuation increase drastically to achieve a positive return. How is Facebook going to do that? The multi-trillion dollar worldwide market of physical world payments is probably Facebook’s best bet at making those returns come true.
Your virtual identity is arguably still up for grabs but at this point the front runner is Facebook with almost 1 billion users worldwide. The question is who will own your real world identity?
Even more interesting is wondering if we can fight for our real world identity or will we succumb to the greatest virtual social network on earth overtaking our physical world as well?