A Crazy Idea To Jump Start Facebook's Revenues

Valleywag is reporting that Facebook’s Mark Zuckerberg is holding 3 term sheets in his hands from Google (GOOG), Microsoft (MSFT) and Yahoo! (YHOO).

Clearly whatever those term sheets agree to is going to be pretty outrageous, but online, data = money; that’s partially why Google the Data Miner is worth $200B in market cap. That’s also why so many are excited about Facebook, because as a leading social network, it’s full of data on its users. So is MySpace (NWS), technically.

But with Facebook, the reason why even the craziest valuation in any one of those three term sheets will “only” propel onto Facebook a $15B valuation - 1/13th of Google’s market cap - is not just Facebook’s smaller size but also its puny revenues: we’re talking $15B for Google vs. $150M for Facebook, or 1/100th.

Facebook is growing rapidly, for sure, that’s why with 1/100th of the revenue, it can command - gulp - 1/13th the market cap. But, the fact is, despite all of the bravado, it’s a valuation that remains but 1/13th.

How come? Clearly, it’s all about the lack of revenue growth.

Social Networking’s Billion Dollar Revenue Stream?

So, what could Facebook do to jumpstart revenues? Here’s a crazy idea:

Facebook should take a page from Google and extend it one step. Google’s brilliant move was to acquire Applied Semantics (for the tech) and Sprinks (for the network) and extend CPC-priced, text link ads from Google.com to other websites.

Today, many argue that “human beings will be the network of advertising”. That sounds creepy and odd, but depending on how it unfolds, it seems very probable.

So why not simply embrace the inevitable, turn Facebook into

a) a massive lead-generator and
b) share the proceeds - not with other sites - but with its users.

Facebook will eventually do a), who are we kidding? But by doing b), then it will avoid a flight of users onto other sites.

Here’s how it would work:

Say I have a profile and Facebook knows plenty about me, I should be able to:

a) opt in for the program (that is a must)

b) create a “threshold” of how much advertising I’m willing to take per period and set a price (or let Facebook create the market price).

I need to give this more thought, but basically there would be a relationship - up to diminishing points of return - between advertising I sit through and revenue I can share with Facebook.

It can’t be “positively correlated forever” because there will be abuse etc., but it can become an interesting ecosystem whereby assuming I opt-in to this, then Facebook will target me to its advertisers.

In fact, it also needs to be negatively correlated, too: if I am willing to see 100 advertisings, at some point, the additional message loses effectiveness…

The revenue would be small enough to avoid fraudulent activity, frankly, but for Facebook, it could be awfully similar to how “Google makes its billions of pennies at a time”.

I really don’t spend much time on Facebook, but from my interactions with it, I can imagine a plethora of ways:

- Suppose I log in to Facebook and see an intermercial based on my interests etc. and get a cut off the revenue Facebook generates.

- Then once I am logged in, I check my inbox, which in addition to all of the nonsense invitations to apps and groups etc., I get X email adverts for a product or service that is related to one of my interests etc. Some would be CPM, CPC or CPA based… again, Facebook’s clearinghouse should be able to price things based on how much exposure I am willing to take.

- Say one of my friends gets back from vacations and uploads pictures. I see off my feed that they’re back… if I had opted for it, then I would also get offers to book a trip to wherever they went, etc.

I know this all sounds creepy, but it would be the ultimate opt-in platform, and if I as a user get a cut, then I won’t really mind it. Sure, there is a potential for fraud and abuse, but that applies to all things when it comes to marketing.

But if Facebook has 40M unique users, it’s all about numbers. At 10% opt-in, or 4M, admittedly, it’s not huge numbers, but if Facebook hits 100M users and 25% opt-in, at 25M users, many of whom log in frequently etc., it starts to add up.

Would this work? Probably not, but running “little text ads next to search results” was crazy, too…