"In the past eight years, all of you out there have built the largest community in the history of the world," Facebook founder Mark Zuckerberg crowed to his newly-minted millionaire employees on the Friday morning of the Facebook IPO.
Zuckerberg got it right. The Facebook community of 900 million is nearly twice as large as the entire European Union and creeping up on the 1.1 billion population of India.
One out of every eight people on earth uses Facebook.
Zuckerberg’s is an astonishing achievement!
Facebook—an Incredible Gift!
I don’t know what I pay for my website on an annual basis, but it’s a fair pinch of change. Facebookers are given the equivalent of a website for free.
Further, with the miracle of technology, Facebook users have a worldwide presence. Travel to Nepal and hire a Sherpa to guide you up Everest, and that Sherpa can become your Facebook friend, instantly in touch with you and all your friends, even though he’s 7,500 miles away.
The question dogging Facebook management—and investors—is quite simply: How do you turn the thing into a moneymaker?
The 10-Word Answer: You get the users to damn well pay for it.
Am I nuts?
Don’t I know that the Annenberg’s Center for the Digital Future polled the Twitterverse in 2010 and found no one would pay for using Twitter.
Not one person. Zero. Zip. Nada. Bupkis.
Am I ignoring the dictum of Richard Nixon’s thuggish gatekeeper, H.R. (Bob) Haldeman, who said: “Once the toothpaste is out of the tube, it's hard to get it back in!”
Quite simply, Facebook ain’t Twitter. For example, I tweet occasionally. At the end of all my e-correspondence is the following:
P.P.S. Follow me on Twitter. I guarantee no waste of your time. http://twitter.com/dennyhatch
In my daily prowl of the Internet, I come up with a dozen or more stories of interest to me that I download into my massive private archive of 70,000 news stories. Every couple of days I see something that might be of interest to everybody and I tweet it with a provocative headline and a hyperlink, just like Drudge.
Would I pay Twitter for the privilege of tweeting? Absolutely not. It’s no big deal. I have no personal investment in Twitter. It’s something I do in about 20 seconds to inform or amuse my 600+ followers.
The Personal Investment in Facebook
Since Facebook is free, technically no user has a financial investment in the site.
However, the average user spends roughly eight hours per month on Facebook—or about one working day a month. That’s 12 days a year.
Twelve working days are equal to two weeks. So in terms of time spent, the average Facebook person invests the equivalent of two weeks pay per year.
If the average is eight hours per month, how many members spend a lot more time—perhaps 16 or 20 hours a month, or more. For tens of millions of stay-at-homes and travelers, Facebook is the centerpiece of their lives—a huge emotional investment.
According to Facebook’s own statistics, the average user’s circle of friends is 120, an extraordinary series of interpersonal networks with which users can stay in touch instantly from any point on earth. What a giggle!
Hey, Mark, Here’s Your Business Plan
1. I would test this as snail mail vs. email.
2. You write a letter describing the fantastic gift you have given 900 million people, where they are members of an extraordinary community that lets them throw a marvelous party, putting them in the epicenter of a swirling mini-universe of friends and family, enabling them to share news, gossip, opinion, photos, adventure and fun.
3. Nothing like this has ever existed in the world before, and these folks are part of it—a social revolution!
4. Although it’s free to the Facebook users, it is horrendously expensive for Zuckerberg to maintain. And it is now owned by millions of investors. After all the money that’s been spent getting up and running, it is time for backers to start receiving a payback for their magnificent gift to the world.
5. Two plans are available:
Bronze Membership: Free. Everything is the same as before. However, you are limited to text only and a maximum of 5,000 words.
Platinum Membership: A buck a month or $9 a year to continue your splendid party.
There should be price tests, including a test panel offering a one-year introductory Charter Membership for $4.
- Bonus to Platinum Members—Confidentiality: Facebook will not mine the personal and professional information revealed on Facebook pages and make it available to advertisers.
- Additional Bonuses to Platinum Members: All kinds of tremendous deals on travel, merchandise, fine dining, etc. The goodies that AOL never figured out and came within a whisker of going bust.
As guys with live-in girlfriends in the 1960s used to say about marriage, “Why buy the cow when the milk is free?”
A goodly number will opt out. Those that take the free Bronze membership will look like cheapskates to their friends. But hey, their friends probably know that about them anyway.
Put another way: Imagine being a world-class Facebooker with a couple of hundred friends, who is so adamant about not paying the piper that you would shut down your Facebook page. That would be like committing suicide in public. You would literally lose "face" (and your circle of friends), which would be emotionally devastating.
Replacing the Facebook experience on your own in some other venue would be far more expensive than $9 a year. We are all used to paying hundreds of dollars for cable and satellite TV, as well as phone and cellphone service, DSL, and Wi-Fi. What could possibly be the hang-up with paying a paltry 3¢ a day for Facebook that gives you a glorious, interactive worldwide reach?
The Benefit to Mark Zuckerberg
Let’s say 200 million members are so bummed out at only getting 5,000 words—or are so incensed at the idea of having to open their wallets a tiny crack—that they drop out. So what? Who needs these freeloaders?
This leaves 700 million folks who love Facebook and who pay $9 a year.
That’s gross revenue of $6.3 billion a year—roughly a 6 percent ROI, which is more than generous in this epoch of teeny interest rates.
Even if 500 million cancel, the remaining 400 million would generate $3.6 billion—not exactly chopped liver.
What’s more, the revenue is almost entirely net profit, because Facebook is dealing in wee spritzes of electricity. No raw materials, no manufacturing, no marketing and advertising costs, no warehousing, no shipping, no returns, no sending trashed merchandise to a landfill.
In addition, unlike most other Websites, Facebook has no editorial costs because the members create all the content.
God, what beautiful business model!
Suddenly Facebook looks interesting to investors again.
Two Words of Advice, Mark: Hire Professionals
I realize that in the world of social media and blogging, the mantra is for everything to be free.
However, with a promotion this serious—on which so much depends—you do not want to put it into the hands of chatty well-meaning bloggers who have never asked for an order in their lives.
Instead, find top-flight professional copywriters, designers and consultants.
And Mark, I know how this would pain you in your fantasy world where everything should be free, but I urge you to PAY THEM CASH MONEY.
I would hire 10 copywriters to create 10 approaches and test them to 250,000 Facebook users by snail mail (at roughly 80¢ a pop) and 500,000 emails (which are essentially free) and see what the hell happens.
Good hunting, Mark.
Takeaways to Consider
- The tragedy of the Internet is that back in the 1990s, the hotshot kids, whom investors trusted, determined that everything on the Internet should be free—including material under copyright.
- “Once the toothpaste is out of the tube, it's hard to get it back in!”
—H.R. Haldeman (1926-1993), presidential assistant and gatekeeper
- One out of every 8 people on earth uses Facebook.
- Zuckerberg’s is an astonishing achievement!
- Facebook is a marvelous party that puts users in the epicenter of a swirling mini-universe of friends and family worldwide, enabling them to share news, gossip, opinion, photos, adventure, and fun.
- How do you turn a splendid Web service into a moneymaker?
- The 10-Word Answer: You get the users to damn well pay for it.
- You may lose some of them along the way, but so what? They are freeloaders.
- Two rules and two rules only exist in direct marketing. Rule No. 1: Test everything. Rule No. 2: See Rule No. 1.