Andreessen: Facebook Could Do $1 Billion in Revenue

Facebook will likely bring in “billions of dollars in revenue” in five years time and could even do $1 billion in revenue this year if it really pushed itself, board member Marc Andreessen told Reuters. (Techmeme)

Instead, it’s more important for Facebook - and even micro-blogging site Twitter - to continue to grow and capture market share. That strategy mirrors the one that Facebook CEO Mark Zuckerberg put forth when he said last year that he didn’t see the need for a revenue plan until 2011.

I’ve been critical in the past of these sites that continue to grow but offer no insight as to how they make money. Maybe I’m tarnished by the last dot-com boom and the number of sites that launched - and generated a lot of publicity - and then disappeared when the money went away. At some point, there needs to be a plan - a strategy of some sort that says “We’re here for the long run, not just until investment money dries up.”

With that said, the Reuters piece addresses that by pointing to the MySpace example.

MySpace was once a leader in social networking but was quickly swooped up by Rupert Murdoch’s News Corp., which put the focus on selling advertisements instead of feeding the growth momentum. As a result, Facebook swooped in and took market share.

When you look at it that way, it’s hard to argue. Forgive me if I’m a bit leery of popular, high-profile Web properties that have no solid plan for generating revenue over the long-term - but I’ve seen that before.

If Facebook can truly bring in $1 billion this year with some effort - as Andreessen suggested - then maybe I don’t have to worry that Facebook will run out of cash and fold up anytime soon.

Comments

[Hank Rearden:]

With 200 Million active users Facebook is beginning to dominate; and Facebook’s competitive advantage (its barrier to competition) will only grow with its member base.

In my opinion, social networking sites are a type of natural monopoly (think one big newspaper per city), and since the whole world is connected to the same internet as you and me, the prize at the end of the rainbow is vast for the eventual monopoly holder.

It makes sense for Facebook to run at a loss until such time as their barrier to competition (per member benefit due to member base) is large enough that they can virtually guarantee a dominant market position in the future.

Natural monopolies are very rare (GOOG, MSFT and AAPL are not natural monopolies); but where they do exist they can leverage their position to make ‘unnaturally’ high returns on capital. Mark my words - Facebook will make money eventually, and lots of it.

Jul 06 10:44 PM

[TradingHelp...:]

Here today gone tomorrow. It's too easily replicated and technology and social media is moving so quickly, you can't compare Facebook to today's other sites and business models, you have to try and imagine what will be happening in 2-3 years. By the time Facebook is a viable business another great fad will be here. Also, everyone I have ever spoken to who has advertised on Facebook says it is singularly a total waste of time and budget. Even Google Adwords is better and that is low praise indeed.

Jul 07 04:27 AM

[Joe2:]

I don't get your point. OK so they gain market share and then what? Is your point that if they get beyond a certain market share, they can then switch to revenue generating mode and not lose customers, the way that myspace did? Is that what you are suggesting? Why do you suppose that would be the case for facebook? Are they THAT different from myspace?

Now Andressen's making a different point. He seems to be proud that facebook could earn $1B if they tried. The point is: it doesn't matter if they earn $1B or $10M. If they are spending more than they are earning, they WILL run out of cash.

What Andressen, Zuckerberg and others are really saying is this: we can bring this thing to a point where we can get a pop out of an IPO or Google will buy us and then we can collect our investment returns and go home. It doesn't really matter that facebook generates a profit. We just need to get it to large enough numbers (users, eyeballs - whatever) that we can sell it. Why don't they just admit this?

I am skeptical of any website and any CEO that says "there's no need for a revenue plan until 2011". What they are saying is "please, someone, buy us so we don't have to work hard to produce a site that has services that someone will pay for".

Oh please.

Jul 07 11:25 AM