Facebook is not likely to make much money selling advertising. Marketers find it hard to target users on social networks. The cannot be neatly grouped like the people who go to Yahoo! (YHOO) Finance or MSN Health and Fitness. Facebook may have 200 million users, but what they have in common with each other and how it can be measured is still anyone’s guess.
Industry rumors are that Facebook will bring in $500 million in revenue this year, a remarkably small number for such a large web operation.
Since Facebook cannot seem to do well attracting marketers, it may have come up with a way to make money on the transactions of its users. According to the FT, “The long-rumoured payments system, which is in its early stages, will allow users to purchase Facebook `credits’, then use those credits to buy virtual goods from the third-party applications that run on the site, or from Facebook itself.”
The program sounds confusing and complex, perhaps because it is. Unlike eBay’s (EBAY) PayPal, which allows users to make purchases in much the same way as they would with a credit card, getting Facebook members to pay for applications like games that are available for sale on the site has limited potential. Most of what can be purchased on Facebook can probably be bought directly from the companies that offer the products or services.
Facebook’s problem is that it wants to make money off what its members do while they are using Facebook. That has substantial limits. Getting money from outside the system is the key to the company’s success whether that is through creating a system that competes with PayPal, a Facebook global payment or credit system, or by charging marketers for access to Facebook users. So far, none of the programs to bring money in from outside the Facebook walled garden have worked, and there is almost no evidence that they will
Douglas A. McIntyre
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