With its latest S1 filing, Facebook showed that growth in profits was slowing. Some of this was surely due to acquisitions, but the news led to many commentators speculating that the giant of social networks was already hitting a plateau — even before its IPO. I think that assessment is flawed. Rather, I believe Facebook is in the flattened portion of the S-curve of revenues. I believe user growth will continue to slow. There are only so many potential live users on the planet with decent Internet connections or 3G-4G phone networks. But Facebook still has a number of arrows in its revenue quiver.
Primary among those is the yet-to-be-announced-but-surely-coming Facebook Connect advertising network. Facebook ads have grown more expensive as businesses have gotten used to the idea of serving spots in such an intimate and non-transactional environment. Of course, Facebook users have also grown more accustomed to the idea of ads in their face. And for advertisers, the value of being able to very easily geotarget users without sophisticated advertising technology (and paying the price to access said technology) is enticing. Want to find mothers who live in Poughkeepsie? Target the Poughkeepsie moms group or people whose profile matches that description.
With Facebook Connect and Facebook Commenting, in theory, Facebook could quite easily extend this same reach to any Website using these products. In other words, publishers who want to offer advertisers the ability to buy ads on their site via the Facebook ad platform could offer up their inventory of pageviews served to Facebook Connect users. This will dramatically extend the reach and context of Facebook ads.
Where Facebook starts to get spooky powerful is in its capability to deliver local ads to a Facebook Connect network that will be personalized and reflect the actions, comments, likes and dislikes of your friends.
In this scenario, a local advertiser wishing to reach people who are looking up, say, Yelp content for pizza joints in their zip code, could buy ads via Facebook. At this point, its not clear to me that there are enough Facebook Connect users to make this worth the time investment for small shops. For really big shops (large brands), using this type of hyperlocal targeting to extend their brand into new targeted venues is a no-brainer. Of course, it’s possible to do this already with some of the existing contextual ad technology that maps IP address to area and then can serve up geo-targeted content.
But where Facebook starts to get spooky powerful is in its capability to deliver local ads to a Facebook Connect network that will be personalized and reflect the actions, comments, likes and dislikes of your friends. This will tap into a recognizable social graph as Facebook seeks to do — and it could turn into an extremely lucrative, higher CPC line of business for Mark Zuckerberg and his team. Of course this may set off privacy concerns for some people. Those people can choose not to use Facebook Connect if they wish. No site I know of excludes people on this basis.
This is really just one example of the potential for Facebook to differentiate its revenue streams by tapping into its network effects and its unique combination of granular user profiles and broad reach. I suspect there are many other possibilities we still haven’t thought of yet. I do remember people talking about Google hitting a plateau a number of years ago. That didn’t happen and still hasn’t really happened. Calling a top for Facebook growth right now seems to me to be misplaced.
Alex Salkever is an executive at a cloud computing company and a former technology editor of BusinessWeek.com. The views expressed in his column are his own and not those of his employer. His Personal Fight column appears every Wednesday on Street Fight.
Related content: As Facebook Readies IPO, Local Strategy Is in Focus (January 31, 2012)
Now is the time to reserve your tickets for Street Fight Summit West. Join the top minds in hyperlocal in San Francisco on June 5th.