There's no such thing as a free lunch. It's an age-old adage meaning,
basically, you don't get something for nothing.
That's the quandary on Wall Street as Facebook, the world's largest social
media networking company, struggles following its May IPO. By all accounts,
the Mark Zuckerberg-founded company holds the title for the worse initial
public offering in history and brings into question the company's business
model of trying to get rich while giving away a service; and whether it can
be done successfully.
With more than 900 million users worldwide, Facebook fetches $3.7 billion a
year without charging their loyal audience for its services. In return,
Facebook gains the much coveted personal information marketers will pay
dearly to have.
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"Free serves purposes, but you have to go beyond free to make some money,"
professor Rita McGrath, who teaches corporate strategy at Columbia Business
School, said.
A good example is that of fellow social-media company LinkedIn. The
business-oriented site, which has effectively redefined business networking,
has seen its stock mount a 65 percent increase this year thanks to a balance
of advertising fees and charging users for premium services.
There are several reasons, other than fees for premium services, that
LinkedIn has outpaced Facebook.
LinkedIn has a more professional feel than Facebook, despite the presence of
major global businesses on the site.
Advertising on LinkedIn is only 28 percent of its profits, while it
comprises 85 percent of revenue for Facebook.
LinkedIn learned quickly how to play the Wall Street odds and exceed
analysts' expectations. In fact, it has crushed estimates for 4 out of the 5
previous quarters.
Facebook, on the other hand, has underwhelmed Wall Street from nearly the
beginning; prompting angry investors to file a class action lawsuit and just
last week billionaire Peter Thiel divested his company of nearly 20.1
million in Facebook stock following the expiration of a lock-up agreement.
"Facebook is in a pickle," Donna Hoffman, co-director of the Sloan Center
for Internet Retailing at the University of California at Riverside, told
the Washington Post. "The advertising broadcast model is dead wrong for this
medium. .?.?. It can never work."
Only time will tell.
If you have any questions or comments please contact me.
Regards Gerald
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