Facebook’s dilemma: growth into gains

Facebook’s dilemma: growth into gains
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First Published: Tue, Jun 24 2008. 11 49 PM IST
Updated: Tue, Jun 24 2008. 11 49 PM IST
If companies can resemble people, Facebook looks like the awkward teen nearing the end of a growth spurt. Last month it blew by competitor MySpace in terms of unique visitors worldwide. But it still makes far less money than News Corp.’s network. Why? Facebook is following the YouTube Llc. model for growth. (News Corp. publishes The Wall Street Journal. Mint has an exclusive content partnership in India with WSJ.)
When Google Inc. bought YouTube for $1.6 billion (Rs6,864 crore today) in October 2006, the video site had 34 million monthly users and was at the end of a growth binge that saw this number multiply 10-fold in nine months. It now has some 59 million users and controls 73% of the online video market in the US, according to Hitwise.
YouTube’s ability to produce revenue isn’t quite as impressive—it’s estimated to bring in only $200 million in 2008. But online video is still a new medium and YouTube has become its de facto king. If Google can learn to monetize online video, its YouTube deal could look genius.
If not, well, YouTube’s founders and early investors have still done nicely. The same logic applies to Facebook. The site had 123 million unique visitors in May, some 8 million more than MySpace and a 162% increase over last year, according to Comscore. This is largely due to huge international growth driven by users translating the site for free. It just opened up in China and Russia and is available in 18 other languages.
But like YouTube, Facebook’s revenues don’t match this growth. While MySpace is expected to pull in $755 million this year, Facebook is looking at about one-third of that, according to EMarketer. And a growth first, profits later strategy carries significant risk. Profits-rich Google can afford to take such hazards with YouTube because it’s basically bought an option on the future of Internet video. And News Corp. is already making far more than it spent on MySpace.
Facebook is still trying to justify the $15 billion valuation its last fund-raising put on the company. If it can’t translate its growth into dollars, it never will.
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First Published: Tue, Jun 24 2008. 11 49 PM IST