How Facebook Can Take Over The Internet

| About: Facebook (FB)

The saying invest in what you know has been around forever. As a young adult who pays attention to the trends around me, I believe Facebook (NASDAQ:FB) should be in your portfolio for the years to come. Facebook has set itself up for future growth by slowly releasing different monetization strategies at different times. Facebook has the opportunity to increase revenue by making money in new areas that they are currently not taking advantage of. Facebook can add the following seven strategies to make more money. While Facebook is valued very highly at the current date, the future prospects of the company are why many Facebook investors are very excited. I want to be clear in stating that a couple of these monetization efforts may be and are close at hand and the others are speculation of certain efforts I believe that Facebook should eventually seek.

1. Add video ads to Facebook.

I believe that video ads will be on Facebook in the near future. Video ads would help bring the TV ad dollars to Facebook. People are more engaged on the Internet and have the ability to take direct action after watching an ad. On Facebook, you can watch an ad and then directly click on a link if you are intrigued. That immediate action resulting from the ad will be more costly for advertisers. This new form of advertising on Facebook will help grow revenue and growth over the previous year would be humongous being that the current revenue from video ads is $0. COO Sheryl Sandberg answers a question about video ads in the Second Quarter Conference Call stating:

On Video ads, we have a current video ad product, because marketers can embed a video in a page post and we see a lot of marketers using that product and seeing good results as a demand to do more on video on Facebook is there. And we're exploring how we can expand that, but we don't have anything new to announce today.

While there are no video ads in the news feed on Facebook to date, the COO clearly states that they are looking into further utilizing video ad products. Video ads have the opportunity to bring in revenue from the television advertising market budgets.

2. Put ads on Instagram.

This goes without saying. Ads will eventually be on Instagram and Facebook did not spend $1 billion on a company to not monetize the mobile application. Also in the near future, Instagram will be monetized. Facebook will start slow as it has shown with previous products and ease the consumer into the ads. Over time, more and more ads will appear which will be additional revenue growth. Eventually Facebook can also add video ads on Instagram for even more revenue. In the Second Quarter Earnings Call, Mark Zuckerberg specifically addressed advertisements on instagram when he stated the following:

We're building Instagram to be a business, and we expect that over time, we're going to generate a lot of profit from it, probably through advertising.

Zuckerberg's own comments on the Earnings Call show Facebook's desire to eventually monetize Instagram. When the time is right, FB will get an additional revenue stream from Instagram.

3. Add a Freemium model for Facebook.

The more time that goes by, the more Facebook will lock users in and get them addicted to the site. Once users feel like they have no where else to go to get their social fix, they will have nowhere else to go. One main reason for this is because they will have too much content that cannot be easily transferred to another social media site. At that point, Facebook should allow users to pay $4.99 per month to not have to see ads inside the news feed. One idea is for these users to still see the side banner ads but not be forced to see the more intrusive news feed ads. For every 10,000,000 users that Facebook get's to purchase this option, they will make an additional $600 million per year. With $12 billion in revenue for fiscal 2012, this is not a bad way to add an additional untapped revenue stream. This model is similar to the way Pandora (NYSE:P) charges a monthly fee to not be subjected to the intrusive ads on the platform. For a better experience, I believe there will be a very good amount of users that will be willing to pay for a better experience.

4. Add a Freemium model for Instagram.

People love Instagram. When they start to see ads appear in their stream, it is only natural for some users to be outraged. Facebook should allow users to pay $4.99 to keep Instagram as it currently is with no ads. By giving the user the opportunity to use the product ad-free, the user will have a choice of whether to use Instagram without ads, and just having a choice will cause for less outrage among their users. If the user really has a problem with ads appearing in their stream, they can simply pay a miniscule fee each month to remove the ads. This can be implemented a little bit after ads are added to Instagram. This is an untouched revenue steam that Facebook has an opportunity to explore in the future. People are willing to pay and Facebook should be willing to accept their money.

5. Charge a subscription fee to businesses with pages with over 10,000 fans.

This is something that Facebook should implement immediately. Facebook supplies one of the largest audiences, and companies with Facebook Pages are advertising to over a billion members basically for free. There is no reason that companies would not pay a monthly surcharge to be allowed to run their Pages. Nowhere in the world do companies get access to an audience this large for free. Facebook has become an explosive place to release new products, start new advertising campaigns, and spread the word of new sales and programs. Nothing in life is free and companies should not be getting these perks for free. According to EMarketer, about 86% of US companies with over 100 employees will use Facebook for marketing purposes in 2013. Facebook needs to create more of a revenue stream than from paying advertisers. These pages are valuable and should be great income generators from companies that benefit from having a Facebook page. As companies become more and more dependent for advertising through their Facebook pages, the page becomes more valuable to them. I believe that we will hear more about pricing for company pages in a few years, but do not see this taking place in the foreseeable future. This is just and additional opportunity for Facebook to explore another monetization effort.

6. Create an E-Commerce platform on top of Pages.

This idea has the greatest potential for explosive growth. At first, Facebook can allow companies to place products on Facebook and create an easy one-touch pay now option where the consumer can purchase the product. At the beginning, this can be the start of large sales and specific marketing of one product for a sale. Eventually this can expand by allowing stores to run their entire online store through the Facebook e-commerce platform. Facebook could even make the purchases require their own Facebook coins and expand their ecosystem. Facebook could get more information about their users such as credit card numbers and what their users are actually purchasing, thereby making advertising more targeted (and thus more valuable). The goal would be for many internet sales to be secured through the Facebook e-commerce platform.

Facebook has been testing and will soon launch a product in e-commerce called Autofill as reported by AllthingsD. The public release will be this upcoming Monday and this will allow Facebook users to store their credit card information and address affiliated with that card. With it's e-commerce partners, consumers will be able to order products much easier. This has many benefits including better tracking of ad success. Facebook will be able to track the effectiveness of certain ads by being able to track exactly how many people purchased an item directly after seeing an ad. This in turn makes certain ads more expensive and is a positive for Facebook's bottom line. As of this time, there are only a few partners using this program at this time, but with more testing and success, e-commerce can become a great opportunity in the future. I believe there is a great chance for this product to expand in the future and be a great product for both the consumer and the company.

7. Better the search product.

When people want to search, they go to Google (NASDAQ:GOOG). Even if you are on Facebook, you leave Facebook to go to Google to perform a search. One way Facebook can take some market share from Google is add a second search box on the top. The current search bar stretches all the way along the top from left to right. However, adding a second search bar would allow Facebook to easier determine when the user is attempting to search their social community or the entire web. The company has attempted in the past to better their search product by releasing the highly hyped Graph Search earlier this year. As time goes by, they will continue to better the search product as Facebook is able to obtain more information about their users.


Therefore, there are many ways for Facebook to create value for their business. There are many untapped revenue streams that Facebook can look into in the future. The biggest opportunity is becoming the portal for everything on the Internet. With an e-commerce platform, a better search product, social gaming, and the newly "borrowed" hash tags feature, there is no need to go anywhere besides Facebook on the Internet. With it's large community and high user engagement, Facebook has the opportunity to become the go to place for everything Internet. Becoming the go to place for everything internet will allow Facebook's monetization efforts to expand exponentially and Facebook will continue to have explosive growth. The current revenue that Facebook brings in is only the beginning of what its true potential can bring. Let's not forget that Facebook is a young company that has not even been around for 10 years.

With all that in mind, it is important to see that while Facebook has run a long ways to its all time highs of $45.62, it still has a lot of major opportunities to grow its revenue. Facebook is a very expensive stock when it relates to its present revenue, but the possibilities in the future is what makes the stock look so promising.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal. Additionally, much of the future monetization efforts in this article included forward looking ideas with some conjecture. None of the monetization strategies are guaranteed to occur in the future.