The Dollar Factory

Facebook losing its charm before it starts making money

Last year, Facebook made headlines about its increasing popularity and open API that allowed 3rd party developers to access its vast user base. Amid all the excitement about the exponentially increasing traffic to the site, many tried to figure out how to monetize it and basically assign a value to the company itself. Reminding us of the dot com craziness of the late nineties, Facebook received a valuation of more than $15 billion as a result of Microsoft investing $240 million for a 1.6% stake in the company.

Unfortunately, 2008 in its short life has been mostly but bad news for Facebook. Their new advertising platform known as Beacon was not welcomed by their members (actually that happened towards the end of 2007) and essentially shook people into realizing that monetizing the Facebook crowd would be much more difficult than initially thought. The many 3rd party applications developed using the publicly available API are mostly annoying and hardly useful or profitable. In fact, even the most popular applications cannot make good money on Facebook. The company itself has yet to turn a profit and according to an article posted on TechCrunch, they expect to lose $150 million in 2008.

In the meantime, new data shows that users are getting fatigued and losing interest on the website. Although registrations continue to increase (at a lower rate than before,) the users are spending less time on Facebook. It seems that everybody is getting tired spending all his time poking people. Or they just realized that they still dislike their old friends from high school and maybe that was the reason they stopped talking to them in the first place, until Facebook came along anyways.

Competition is also fierce. MySpace which is larger than Facebook since it has been around longer is about to release its own public API giving 3rd parties access to their users. In the meantime, Google recently released a new API that taps into a person’s social graph constructed using data freely available on the World Wide Web. Finally, a myriad of smaller but more specialized social networks have emerged over the last couple of years capturing those users who just want to avoid the clutter of the larger networks.

All in all, Facebook is in decline and they will have a hard time justifying their huge valuation. The company will not go away any time soon and it will continue to exist for many, many years but the days that all we hear about how cool Facebook is won’t last much longer. And the insane valuation that Microsoft placed on them based on smoke and mirrors will soon be nothing but a long lost memory. I just wonder, what new fad will replace Facebook?