In late 2010 I wrote a blog post about how Facebook could easily be worth $100B. Some of my colleagues called me up and did nothing short but claim that I must be crazy. That’s perfectly fine. I have a feeling that I’m going to get even more calls about this post. My rationale isn’t built up from an analyst’s financial model or from leveraging traditional market sizing techniques, it’s mostly based on intuition about how Facebook can become the key player in the world of Online marketing and advertising.
Google is the leader in performance and direct response advertising, converting users wants and needs to e-commerce transactions and sales leads. Facebook competes with Google on direct response and is becoming more and more effective in doing so by leveraging the Social and user’s click-stream data, capturing a growing portion of Google’s market.
However, Facebook’s untapped potential is actually in brand advertising, a space that currently has no clear winner and will account for almost half of total online advertising spending in 2015, according to e-marketer.
Brands already get it and are willing to pay; But Facebook hasn’t yet found the right model to fully incorporate them. The value of positive engagements between consumers and brands shared across the social space is hard to match, and Facebook will find ways to scale the monetization of that on facebook.com across fan pages, ads and the newsfeed.
Analysts focus on revenues from ads delivered on Facebook.com, and Facebook has just started maximizing its potential there, but Facebook has not yet turned to monetize one of its greatest assets – the Open Graph.
Hundreds of millions of users are using Facebook’s open graph capabilities across million of websites (including most of the top sites in the world). More than 10,000 sites are adding the Open Graph capabilities each month. “Login with Facebook” is no longer an option – it’s a must.
Additionally, Facebook captures endless piles of data about people, their lives, and their friends. Think a lifetime worth of data and then multiple that by over 800 million users. Big Data indeed. This staggering amount of data will enable Facebook to deliver ad targeting capabilities which are unparalleled, optimizing performance and accuracy better than any marketing tool seen before. Whether this happens or not depends mostly on execution, not on the conceptual capability to deliver those tools. The data is there.
This all leads to Facebook having a unique opportunity to create an unparalleled display ad network outside of Facebook, adding social targeting to help drive up revenues. With this strategy, there is no reason why Facebook can’t control the same portion of the market in online branding as Google does with direct response. Facebook can eventually match Google ad revenues with a combination of brand and direct response ad products, inside Facebook.com and in many leading destination sites outside of Facebook. With other revenue streams, such as payments for virtual goods, Facebook can even outpace Google.
Compared to Google, Facebook’s business is potentially more defendable. In Search, Google dominance is driven by excellence in monetization, a powerful brand and great technology. However, Google does not “own” search, it just executes better than anybody else in the search world. as technology progresses Google’s tech advantage is becoming more incremental compared to some of its competitors, and can be potentially disrupted. It’s going to be crazy hard to disrupt Google, but it’s doable.
Facebook is not in the same boat. Social is already an inherent, must-have, layer in everything online – websites, mobile apps and smart TVs. Facebook “owns” Social, and in its dominance is driven by a powerful network affect. Technology is not the key driver here. Many can potentially try to create a social network service that outperforms or delivers more features than Facebook does, but it doesn’t really matter. What matters is that all your friends are on Facebook.
At this point in time, Disrupting Facebook requires more than a just better tech or flawless execution. It requires a paradigm shift to a whole new era of online computing, and even there it’s pretty safe to assume that Facebook will be all over the place.
So, whether it takes 12 month or 5 years, it’s pretty much inevitable – Facebook, as mission critical piece of our connected identity stack, will increasingly find ways to monetize its position and would be worth more than Google today at $200B.