Entrepreneurship

The Facebook Movie

Image representing Facebook as depicted in Cru...

Image via CrunchBase

It’s funny how a movie can be interesting, even if you know how the story ends.  That’s the case for the new Facebook movie, written by Aaron Sorkin, which I saw last weekend.  It’s a great movie, even if it exaggerates everyone’s character, especially that of Mark Zuckerberg, one of the founders of Facebook. One of the characters says to Zuckerberg, “every creation myth has to have a devil”, and that is indeed how Zuckerberg is played in the movie. 

There are a lot of lessons for would-be entrepreneurs in the movie:

  1. Get your own lawyer
  2. Make sure you have anti-dilution protection
  3. Be ware of venture capitalists bearing money
  4. Friendship means nothing when billions of dollars are at stake
  5. An idea is intellectual property

But the most intriguing question in the movie from a business perspective is the question of monetization.  That is, how can Facebook make money?  According to Reuters,  FB made almost $800 million in revenue, and in the tens of millions in profit in fiscal year 2009. 

 Let’s start with FB’s much vaunted 500 million users.  If we used the traditional 20/80 rule, that is 20% of the users account for 80% of the activity, we would have 100 million active users.  I suspect that this rule might be a bit off here, so I’m going to be generous and suggest that its more like 40% of users accounting for 80% of activity.  That leaves us with 200 million users.  Not bad.  According to the Lubin School of Business, 84% of the millennial generation don’t notice advertisements on social network sites. But if only 15% of users notice the ads on FB, that leaves advertisers with an audience of 30 million users.  Which is a respectable number of users, but, as an advertiser, certainly isn’t something that is the next new thing.

According eMarketer, 73% of millennials see social networking as entertainment.  In this environment, advertising is going to be a more difficult proposition.  When people do a Google search, they are open to being advertised to, since they are searching out information.  When we’re on FB, we’re communicating with our friends, not looking for info about products.  Just because you know a lot about my interests, doesn’t mean that I’m interested in hearing about them when I’m on FB. 

That said, for certain types of products, FB might be just the thing. Millennials are hot to jump on a trend, especially if it is a technological trend.  FB might be the ideal venue for these types of products and services.

While I’m sceptical about the impact of FB, the jury is still out on it as an effective advertising method.  My recommendation?  Engage with social media.  Test it and measure the results.  Social media is a very labour intensive marketing tool.  Make sure that it is generating results that reflect the effort and money required to support it.

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