This is the second post that examines one valuable asset Facebook definitely has--the daily attention of a large group
of people--by looking at other analogous things
this user base's attention is yielding in the marketplace. The last post considered TV advertising, and concluded (albeit roughly) that the time spent by FB users online might be worth $3B/year to FB in TV-like advertising on the Web.
This post considers mobile phone use. Let's say there are 10M FB users in their core demographic (young people on college campuses). Note that FB apparently has 30M users total. The average cell phone bill is about $50, which may be on the low end for college students. Let's go with it for now.
10M users * $50/month * 12 months/year = $6B/year in revenue.
Now, of course this mobile phone comparison is quite different than the TV advertising comparison. FB has a shot at actually creating TV-like brand awareness advertising on its site, but doesn't have a prayer of capturing any of the mobile phone market's revenue. Or does it?
On the one hand, FB's core demographic arguably uses FB to communicate as much as they do with their mobile phones. And consequently, surveyed, this demographic might say they derive just as much value from FB as they do from their mobile phones. Although the same might be said for email and IM, both of which are free of course.
On the other hand, people pay for mobile phone service, because they want to be...duh...mobile. But that isn't the whole story either. If you have a wi-fi device on a college campus, then you could connect with your friends via FB outside the mobile phone network. And they could add voice pretty easily...
So I don't think it is totally clear cut. Granted, if FB charged $50/month, that probably wouldn't fly. But what about $10/month for some useful feature subset? Some might say well then people would just switch to X, but I'm not so sure. Just because people can switch without monetary cost, doesn't mean people will switch. And they would presumably still have the free version.
Anyway, at $10/month on average, that's roughly $1B/year in revenue. Now I realize that not *everyone* would pay. That average # could be chopped up a number of ways. Maybe , because of the way it is offered (in some network effect way), the vast majority of the core demographic does sign up. Or, maybe it is a heavily skewed distribution with a bunch at a few $ and some at $100. The latter might be realized if the offering was more in a la carte services.
Now, FB has a ton of employees (for who knows what reason), but their profit margins are probably still way way higher than mobile phone companies. After all, they have no cell towers, customer service, stores, etc. So in effect, that $1B might be equivalent in earnings.
Of course, there are in-betweens as well. There could be cell phone plan add-ons for exclusive FB services. FB could launch a MVNO.
All in all, I suppose I just find it amusing that college kids spend $6B/year on their cell phones (probably more) and not a penny on FB. Now I realize their are valid economic reasons for this. It might cost that much to actually provide the mobile phone service (not sure what their margins are exactly). And the cost of providing FB might be so low it pushes it down to being free.
But, at the same time, I think these markets are colliding and FB has significant market power. So every day this gets closer to market collision and FB gets more market power, is a day where FB is giving valuable surplus to consumers. How much? I don't know. What do you think?
This post considers mobile phone use. Let's say there are 10M FB users in their core demographic (young people on college campuses). Note that FB apparently has 30M users total. The average cell phone bill is about $50, which may be on the low end for college students. Let's go with it for now.
10M users * $50/month * 12 months/year = $6B/year in revenue.
Now, of course this mobile phone comparison is quite different than the TV advertising comparison. FB has a shot at actually creating TV-like brand awareness advertising on its site, but doesn't have a prayer of capturing any of the mobile phone market's revenue. Or does it?
On the one hand, FB's core demographic arguably uses FB to communicate as much as they do with their mobile phones. And consequently, surveyed, this demographic might say they derive just as much value from FB as they do from their mobile phones. Although the same might be said for email and IM, both of which are free of course.
On the other hand, people pay for mobile phone service, because they want to be...duh...mobile. But that isn't the whole story either. If you have a wi-fi device on a college campus, then you could connect with your friends via FB outside the mobile phone network. And they could add voice pretty easily...
So I don't think it is totally clear cut. Granted, if FB charged $50/month, that probably wouldn't fly. But what about $10/month for some useful feature subset? Some might say well then people would just switch to X, but I'm not so sure. Just because people can switch without monetary cost, doesn't mean people will switch. And they would presumably still have the free version.
Anyway, at $10/month on average, that's roughly $1B/year in revenue. Now I realize that not *everyone* would pay. That average # could be chopped up a number of ways. Maybe , because of the way it is offered (in some network effect way), the vast majority of the core demographic does sign up. Or, maybe it is a heavily skewed distribution with a bunch at a few $ and some at $100. The latter might be realized if the offering was more in a la carte services.
Now, FB has a ton of employees (for who knows what reason), but their profit margins are probably still way way higher than mobile phone companies. After all, they have no cell towers, customer service, stores, etc. So in effect, that $1B might be equivalent in earnings.
Of course, there are in-betweens as well. There could be cell phone plan add-ons for exclusive FB services. FB could launch a MVNO.
All in all, I suppose I just find it amusing that college kids spend $6B/year on their cell phones (probably more) and not a penny on FB. Now I realize their are valid economic reasons for this. It might cost that much to actually provide the mobile phone service (not sure what their margins are exactly). And the cost of providing FB might be so low it pushes it down to being free.
But, at the same time, I think these markets are colliding and FB has significant market power. So every day this gets closer to market collision and FB gets more market power, is a day where FB is giving valuable surplus to consumers. How much? I don't know. What do you think?
