Ever since I made the rather controversial statement in Feb 2010 in a public forum in Singapore that Facebook will overtake Google from a traffic point of view before 2011, I have had some interesting conversation with a variety of people. I guess I misjudged. As of Sept 2010, Facebook had overtaken Google in terms of eyeballs.
Not surprisingly, it also has the largest page views and leads the 2nd contender by a huge measure. Will the people and eyeballs create a business model that can be potentially be bigger than Google which has current annual revenues of U.S.$27 billion? That’s the big question!
I have also said that while they may compete for advertising dollars, Facebook’s model lends itself to both advertising, entertainment and commerce as it becomes the Internet.
Facebook has indeed the potential to dominate everything that we do on the Internet and I just list 2 main revenue opportunities here:
The advertising revenue model:
Facebook’s advertising revenues (its only revenue stream) was projected to end up at $1.5 billion in 2010 which is an incredible increase from $635 million. My reckoning is that it may even cross the $2 billion mark in 2010 itself.
The biggest advertisers have boosted spending by at least tenfold in the past year as Facebook crossed the 500 million users mark. "Two years ago the big brands were experimenting with us, they started buying with us a year ago. Now, they’re going big." said Facebook’s COO Sheryl Sandberg in a recent interview.
If this be true, then Facebook has an accelerated growth trajectory ahead than what Google had during their initial years. As far as advertising is concerned, Facebook provides the demographic characteristics and interests, an increased social engagement through social graph and these are the buying criteria which marketers have traditionally been used to. So Facebook becomes the platform of choice foe marketers to reach a broad online audience. On the contrary Google’s target is based on the search intent and while Google is making search better by predictive technology, it could still lag behind the Facebook model.
My reckoning is that Facebook’s advertising revenue model may come more at the expense of TV advertising than the text advertising. Facebook can always create an equivalent of Google’s Adsense and AdWords model and draw some revenues from Google. I expect this may be a $10-12 billion business in 5 years.
The entertainment revenue stream:
With the success of Zynga and several other gaming companies like EA choosing Facebook as the platform, it is only a matter of time before every other gaming and virtual goods service embrace Facebook. Facebook earns a cool 30% out of all revenues the gaming revenues and revenues from virtual goods. Based on current run rate, this could be another $5-7 billion in 5 years.
There are several other revenue streams coming out of commerce. An alliance with Amazon, an acquisition of PayPal and this can become the harbinger for all revenue streams coming from commerce.
So, when will Facebook overtake Google in terms of revenues? Your guess is as good as mine! But wait, I am still mentally occupied with the question and will come to some conclusions early next year.