Nicholas Carlson | Business Insider
This week, Facebook finally hosts the 2012 version of its somewhat-annual developers’ conference, F8.
Facebook is expected to announce new integration points with its site for the music, film, and TV industries.
The stakes could not be higher.
Facebook is not a mildly ambitious company. Leadership tells new executives that their goal is to grow the company into a trillion dollar market cap.
Go ahead and try to name some companies with a trillion dollar market cap. (You can’t.)
The ambitions are, of course, justifiable.
Since launching at Harvard in 2004, Facebook has reached 750 million users. That’s impressive. So is the business Facebook has built around those users. People expect $4 billion revenues and $2 billion profits for the company this year.
But those large numbers are actually not as large as Google’s profits and revenues were by the time it was the same age Facebook is now.
Here’s a chart that shows this:
The point is this: If Facebook is going to reach its trillion dollar goal justify its huge $80 billion valuation on the private markets its business has to accelerate past the benchmarks set by Google.
That is a huge challenge. Putting ads on search results pages is pretty much a perfect business. The things literally sell themselves.
Meanwhile, a majority of Facebook revenues still come from brand advertising sales.
Brand advertising can be a very big business Yahoo’s revenues are in the tens of billions of dollars, for example but it is a high-touch, human-heavy business.
To be as big as it wants to be to be as big as investors buying into an expected $100 million IPO need it to be Facebook has to be something more than a brand advertising-supported business.
Facebook CEO Mark Zuckerberg knows this, and he has a plan.
It is to tax other businesses actually, whole industries that figure out ways to make money off of social networking.
The model for this plan is Zynga.
Zynga re-invented the videogame industry by selling virtual goods to Facebook users. Facebook, in turn, taxes Zynga by taking 30% out of every transaction.
Now Zynga is bigger than Electronic Arts and Facebook generates hundreds of millions of dollars off Facebook Credits every year.
That is the vision Facebook and Zuckerberg have for the integrations they have built into Facebook.com for the music and video industries and are expected to announce this week at F8.
Zuckerberg said as much at a conference in San Francisco last year in a six minute speech about how, starting sometime in the next five years, he expects his company to make billions of dollars helping establish Zynga-like companies in the TV, news, film, and music industries.
He said:
“Our view is that we should play a role in helping to re-form and re-think all those industries, and we’ll get value proportional to what we put in.”
“In gaming, we get some percentage of the value of those companies through ads and credits. But that’s all because we’re helping them.”
“If we’re helpful to other industries in building out what would be a good solution then there will be some way we get value from that. “
How much value? Who knows. But the goal involves 12 zeros: $1,000,000,000,000.
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See Also:
- LinkedIn Stock Surges On Rumors Of A Big Partnership With Facebook
- Facebook Mimics Twitter, Offers A “Subscribe” Option So Strangers Can Get Your Status Updates
- What Normal People Really Think Of Facebook Games
The original version of the story appears here: http://www.businessinsider.com/the-future-of-facebook-will-be-decided-this-week-2011-9
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