By Gadjo Cardenas Sevilla
Many of Facebook’s 900 million users have no clue how the social network makes its money and apparently neither do investors who watched in horror as Facebook’s stock plunged by 51 %.
Facebook’s initial public offering was revealed last May to much fanfare. With an unprecedented peak market capitalization of $104 billion, the biggest for a technology and Internet stock.
Facebook stock was initially offered at $38.00, but last week hit a $18.75 per share low point (as of this writing the stock is at $19.66) around half the initial value.
Investors who speculated on Facebook’s success are now paralyzed and can only watch as their stock’s value see-saws downwards, but some are confident that Facebook is a long-term winner. They want to give it more time, waiting and hoping on the stock to rebound.
Analysts are a bit more skeptical.
“Investors don’t know how to think about Facebook, most likely because they don’t use it,” said Brian Solis, an analyst at Altimeter Group in an interview with CNN.
As an Internet company, Facebook’s product is its online service. Unlike hardware or paid software, there are no unit sales or long lineups for product releases to judge the company’s performance and value. Facebook users, which are nearing the 1 billion mark, are its true wealth.
And Facebook is an extremely popular and widely used service. Just look around in any coffee shop where there’s free WiFi and you will see the familiar blue Facebook pages on nearly every screen. Check out the Apple Retail Stores which encourage visitors to use the computers and tablets, most of the people there are checking in on Facebook.
You don’t have to go far, look around your very office and you can often catch a co-worker or two sneaking a peek at their timeline or browsing someone else’s Facebook page.
Prevalent, pervasive
Facebook is so prevalent and pervasive that it has changed how people and companies represent themselves online.
Ten years ago, companies pitched their websites and their www.companyname.com URLs.
They paid tens of thousands of dollars to web designers to create their online brand and spice up the user experience with neat Flash animations and whiz-bang functionality.
Now, many of the same companies are happy to just put up a www.facebook.com/companyname page and have someone from the communications department run it. They run contests and promotions of Facebook and even put up pages for individual products.
Why? because their targeted customers are already on Facebook and one ‘Like’ is worth hundreds of website clicks. Communities are easily built on Facebook’s platform.
While it can be argued that Facebook has killed off the creative website design industry, at least for personal pages and corporate clients, it has most certainly started to supersede email as the preferred formof communication, specially with younger users.
That is why Facebook is rushing to establish better mobile clients for tablets and smartphones, they understand that this is where their market is going. They just released a new Apple iOS app which is faster and more dynamic then the previous versions. It is expected to do the same for other mobile devices and they have tried numerous times to release Facebook-smartphones with more integrated features.
Facebook estimated 543 million users looked at Facebook on their mobile devices at the end of June, a 67 percent jump from last year.
Facebook makes money by serving advertisements on its various pages
But how does Facebook make its money?
The service is free, it doesn’t charge for access or online space consumed (although it famously keeps and owns all the information and data we put up on it).
Facebook’s main income earner is advertising. They also make a tidy profit from some of the in-game and in-app purchases but the majority of the moolah is from serving ads to users.
“We don’t build services to make money; we make money to build better services,” Zuckerberg told investors before the company went public.
But investors are out to make money and if these Facebook services fail to gain traction soon, Facebook may be in for more challenging times.
