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September 17, 2009

This Is Not An Oxymoron: Money-Maker Facebook

Maybe I suffer from too much skepticism, but this social media headline from Ad Age certainly grabbed my attention: “Facebook Finds Profitability Despite Nascent Advertising Model.” Drilling a little deeper this morning, I discovered that this information came straight from Mark Zuckerberg at the Facebook blog, who, in the second-to-last paragraph of a post yesterday, said, in a “BTW” kinda fashion: “Earlier this year, we said we expected to be cash flow positive sometime in 2010, and I’m pleased to share that we achieved this milestone last quarter.”Now, as Facebook isn’t a public company, Zuckerberg didn’t give further details, but we can assume, as Ad Age did, that Facebook can actually turn a profit by offering up teeny ads (mostly touting baldness cures to women whose profile pictures show that they have lots of hair), and from people who are actually dumb enough to spend money on virtual baby gifts instead of real ones.

But, really, I’m kidding — so if you just went out and, dammit, bought that virtual baby rattle, don’t be offended. The news that Facebook is now profitable is really good news, in a number of ways.

For one, as the Ad Age story points out, Facebook has done this without having a very robust advertising model. That means it’s safer than ever from MySpace-it-is — or, the compulsion to put so many ads on each page of your social net that you induce epileptic fits among users.

Second, it gives Facebook more of a cushion to come out with some truly innovative ways to make money. All this time, I’ve been somewhat concerned that it would some day have to resort to in-your-face ways to make money that would truly cause a lot of user unrest (and perhaps even desertion). Phew.

But the news that Facebook makes more money than it spends — partly due to lean staffing —  leaves many unanswered questions that so far have mostly been “answered” by analysts: What’s the revenue split between advertising and virtual commerce? How do the click-through rates of ads on Facebook compare with search ads on the one hand, and display ads on the other? How much money is Facebook making from big advertisers, or are they all just building fan pages and apps for which Facebook receives no revenue? (It should.) And what is the most compelling way, from both a user and advertiser standpoint, that Facebook could make money?

Of course, many of those questions might only be answered if Facebook ever went public. Only then would it have to provide the endless Powerpoint slides that so many other companies have created, all in the name of attracting and keeping shareholders. But here’s the thing: While a money-making Facebook makes a public Facebook more of a possibility, I think private, in the case of social media, is just fine, thank you.

It’s somehow fitting that Zuckerberg’s post yesterday was mostly about user growth, which has now reached 300 million. The mention about the service actually making money was an afterthought. One of the things that has made Facebook work is that it values users above revenue, and generally, a shift in those priorities changes things. (Notable exception — Google — but Google just isn’t like other companies.)

What I’ve just said probably sounds as though I think social nets should be socialist nets, but what the hell, socialism is so trendy these days. I know this column was a bit of a ramble, but Facebook as a money-making service that values user experience first and money-making second just sounds right to me. Under the current circumstances, it can happily do both. Just sayin’.


Catharine P. Taylor has been covering digital media and advertising for almost 15 years. Contact her here.

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