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Facebook: still bad at making money

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This blog post is based on the one I posted on www.warc.com

Deloitte has produced some great research into the UK TV market to coincide with the Edinburgh International TV Festival.

The study, entitled ‘Perspectives on Television in Words and Numbers’, is full of all sorts of stats about video-on-demand uptake, product placement and other TV goodies. But one statistic in particular caught my eye. Deloitte makes the point that television as an industry remains far far more effective at converting users into revenues. The report, which is based on UK data, states: “It takes 93 days to generate a pound of advertising revenue per Facebook user; this compares to 11 days for an ITV viewer [ITV is the UK’s leading commercial broadcaster]. Social network’s CPMs are estimated at between 30 and 40 pence, far lower than the average for television. YouTube’s CPM has been estimated at 72 pence.”

It’s not exactly comparing apples with apples (a Facebook user is not the equivalent of a TV viewer), but it’s an interesting point. Facebook may be making money, and its revenues may be growing quickly, but it’s still pretty ineffective at turning users into dollars.

A further illustration of this is in the Deloitte endnotes. ITV, a UK-only broadcaster that has had a torrid few years, pulled in £987 million (around $1.5 billion) of revenue in the year to 30 June 2010. Facebook, which has upwards of 500 million users around the world, is forecast to make $1 billion in the more optimistic forecasts.

I was recently asked whether I thought social media revenues were likely to follow the same growth trajectory as search revenues did a few years ago. To recap, here’s a reminder of just how quickly Google grew in the middle years of the last decade.

Despite the forecasts of some tech evangelists, on the current evidence, it would take an almighty shift in advertiser behaviour to push Facebook along the same path. Recent forecasts from eMarketer show solid growth in adspend on social networks over the next two years from $1.4 billion to $2 billion in the US. Good, but it’s no Google! It’s fair to say that Facebook et al are still seeking the ‘killer app’ when it comes to attracting marketing investment; the equivalent to Google’s AdWords.

Of course, it’s worth remembering that Google’s rise was driven as much by SMEs and direct-response advertisers as by big brand advertisers. It created a whole new direct-response channel.

Interestingly, there are social media companies out there already making large sums of money. China’s Tencent, owner of the QQ platform, is one of them – its revenues easily eclipse those of Facebook despite being a single-market operator. Tencent’s growth, however, has owed little to advertising. Online ad revenues make up less than 10% of its turnover. The bulk of its revenue comes from ‘internet value-added services’, mostly online gaming. It makes money, in other words, from its users.

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Written by davidtiltman

September 2, 2010 at 6:01 pm

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