Why Software Is Eating The World

 In Business Model Management, Industry News

Is Facebook a good business model?

The titel of this post comes from an essay in the Wall Street Journal written by Marc Andreessen.  It is a very positive outlook for the software industry and a warning to the physical industries (and also to some of the established segments of the software industry) that changes are (still) coming in tidal waves.

He is obviously right.  Look back 30 years and tell me what happened to Control Data, Prime Computers, Lotus 123, WordPerfect, ICL, Norsk Data, Nixdorf, Olivetti, All-in-one (from DEC), IFPS, UNIRAS, Univac, Data General (with the CEO software package), Cray (they are still around, but bleeding) and so on and so on. Some were acquired and some just didn’t make it. Most of them didn’t see the technology shifts in the market and were outcompeted.

So far so good. Hindsight is pretty accurate. The tricky part comes when predicting who the winners will be in the future.  Marc Andreessen has a vented interest in some of the companies of which Facebook is one.

The Facebook Business Model

I am a Facebook user myself.  I communicate with family and friends all over the world on a regular basis.  Works great.  But I don’t pay Facebook a single cent for all the good things they provide me. And I have never clicked an add (as far as I remember) or activated an application.  Actually it amazes me how irrelevant the adds are (yes I do look at them from time to time). Through my activities on Facebook I obviously give away a lot of information about myself. But somehow this information is apparently  not providing the basis for interpreting my needs and interests. I may be an exception (would make me very proud).  However, I don’t think so. When I talk to family and friends, they all claim they don’t see the adds and they never click the adds.

Facebook expects to generate USD 4 billion in advertisement revenue in 2011.  They have approx. 750 million users. This gives a revenue of USD 5,3 per user per year. I would say that Facebook has a very fragile business model. The business model is the old indirect one used by the media industry for ages. “We give you something you want for free and you have to tolerate the advertisement which pays the bill”.  With Facebook the advertisement is supposed to be relevant, but my personal experience is the opposite.

Maybe it is not Facebook’s fault.  It can just as well be the advertisers who are incapable of linking their products and services to the many attributes Facebook is providing about its’ users. Or maybe it is just not possible to read relevance out of the data.  I don’t know, I am not in that business.  I would love to hear examples of  advertisers/applications, who have positive RoI on their Facebook activities. With USD 4 billion in advertisement revenue in 2011 Facebook must be providing genuine business value to someone (paying USD in return).

I am currently struggling to figure out how our company can benefit from Facebook.  Our company is providing management consulting services to the software industry. We are a B2B company. I have been talking to loads of people and I have been using hours to understand how we can “connect” with our key potential client.  But I still haven’t found what I’m looking for.

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