July 2010, facebook.com reaches 500 million active users, making it one of the most visited and important websites on the web. Given its size and social impact, how can this company make money in a way that is consistent with its Vision & Mission? Here’s the Facebook mission statement: “Facebook is a social utility that helps people communicate more efficiently with their friends, family and coworkers. The company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people’s real-world social connections.”
Given Facebook’s mission statement, where is the profit making potential, and could the company ever be worth as much as Microsoft’s 2007 deal that valued Facebook at $15 billion? The biggest potential for profit with Facebook seems to be its ability to collect information on people and then sell that to marketers who sell stuff or by charging companies for on-site advertising, either way the amount of people who join Facebook will have a big impact on the value of the company.
Number of People on Facebook
Here’s a graph showing the number of active users on Facebook since its inception in February 2004. Note the acceleration in the number of active users, it took 4 years for Facebook to go from 0 to 100 million users, but only 4 months to go from 400 million to 500 million.
The source for this data is Facebook itself, specifically here, and an active user is defined as someone who has logged in within the last 30 days.
Previous Offers to Buy Facebook
June 2004 – An unnamed investor offered $10 million to buy thefacebook.com
March 2005 – Viacom offered 75 million
February 2006 – Viacom offered $1.5 billion
June 2006 – Yahoo offered $1 billion
October 2007 – Microsoft buys 1.6% for $247 million
Microsoft’s purchase of a portion of Facebook came after Google, the only tech company with the money to buy Facebook started negotiating a buyout in the Fall of 2007. The Microsoft stake values Facebook at $15 billion, and comes with a stipulation that Facebook would have to give Microsoft notice before an potential buyout offer from Google is considered. As of today, Microsoft is best positioned to buy Facebook.
How Much Revenue does Facebook Generate
While Facebook is a free service to its users, it is able to make money by selling ads to advertisers and by selling virtual goods to users. Here’s a breakdown of where the revenue came from in 2009 according to David Kirkpatrick’s book, The Facebook Effect.
$500 million in estimated 2009 revenue:
- $300 million in self service ads
- $100 million in user involvement ads
- $50 million in Microsoft ads
- $50 million in virtual sales
