15 Jul 2009 7:53 am   //   Filed under: Technology

Life without Facebook

I check Facebook several times a day to see what my friends are posting. It’s fun.

I also like it because it’s free. I’ve never spent any money on Facebook, or as a result of Facebook, and I probably never will. Which, in a theme I’ve written about here before on this blog, is a little scary. Is there a business here, or just a Web site? And would we be OK if one day it collapsed?

Bloomberg has a good summary of Facebook’s business picture. Yesterday an investor acquired a small portion of Facebook’s private shares. The company is worth somewhere between $6.5 billion and $10 billion, has 900 employees, and expects revenues of $500 million this year. It loses money, but expects to be “cash-flow positive sometime in 2010.”

Facebook’s main business is selling ads. It charges per click. So if you go on Facebook right now and click on an ad—it doesn’t matter if you’re interested or not—you’re generating value. Go try it a few times. Click click click! Wow, look at all the wealth you’ve just created!

If this seems ridiculous, it’s because it is.

Advertisers are skeptical of the pay-per-click model, which is one reason why online advertising has stopped growing, and might actually be falling, even though online usage is surging. Some angry advertisers have even sued Facebook for alleged “click fraud.”

If Facebook really wanted to make money, they’d provide advertisers with names and contact information for all the people who clicked on a particular ad. If the ultimate aim is to generate business leads, Facebook is perfectly positioned to do that. Example: If you clicked on the trailer for the Harry Potter movie, you might get a follow-up message from Warner Bros. telling you when and where the film is playing near you.

Facebook probably won’t do this because users find it creepy. People still consider it a violation of trust when online companies share individual user data with advertisers. It would be like setting off a stink bomb; we’d all head for the exits. And that’s Facebook’s biggest problem: People are only on Facebook because people are on Facebook. There are plenty of other social networking sites. If Facebook started to suck, it might take a few months for people to seek out the best alternative, but we’d all end up there eventually. It would just happen.

So what if 2011 comes and Facebook is still losing millions a year? Would they shut it down? That may be the wrong question. They wouldn’t have to, they’d just have to stop making upgrades to the service. People would move on and the company would gracefully slip into obscurity. Classic example: Netscape. Not that anybody went broke working for Netscape. Just ask Netscape founder Marc Andreessen. Who, by the way, is on the Facebook board.