A Viable Business Model for Facebook

Facebook’s second quarter revenue is expected to be $1.1 billion. That would give them roughly $4.4 billion per year, not exactly a number that justifies the $100 billion market cap they were/are hoping for. Compare that to Google’s $37 billion last year with current $200B market cap and Facebook isn’t even a player yet.

The endgame has arrived and the whole world is on Facebook today. Those that aren’t are seen as eccentric and are beginning to get depressed about losing touch with their kids.

What business model would make sense for Facebook now? Clearly advertising isn’t cutting it. They have a problem of “intent”. People go to Google to find things and if those things are in an ad, they click that ad. With Facebook the only intent is to “facebook”, not find a plumber and potentially click an ad. So as far as I’m concerned advertising will never work for Facebook.

So what should they do? Well, for starters, they have a dossier on just about every literate person on the planet with Internet access. Their data extends beyond just their own website facebook.com. They have data on most of the websites their members visit and what those members do on each website. They know who you are, where you are, who your friends are, who their friends are, where you were born, what you and your friends look like, who you communicate with most frequently, what you like, which websites you visit most frequently, how you get to those websites,  which pages you visit on those websites and all the usual demographic cruft.

In short, Facebook is the most complete and most current database of dossiers on individuals globally that the world has ever seen and it’s effortlessly updated in real-time.

So who might be interested in that? Any intelligence agency on the planet. Is there any money in that? Lets find out.

The Department of Defense in the United States 2013 budget is going to be roughly $525 billion. How much of that might they spend on surveilling people globally in real-time? Looking at the budget for the National Reconnaissance  Office (NRO), the guys who launch and manage our spy satellites, is instructive.

The NRO’s budget for 2010 was roughly $15 billion. If Facebook can also be considered a global array of data gathering nodes similar to our spy satellites, then surely $15 billion would be a reasonable number to throw around in a conversation with the folks who launch and operate the data gathering nodes?

And that’s one customer, albeit the largest customer. Remember that the USA has intelligence partners around the world. An example of this is the five signatory states in the UK-USA signals intelligence sharing agreement which are: USA, UK, Canada, Australia and New Zealand. All these folks have significant budget they can also contribute.

Another budget item that might be instructive to look at is the cost of ECHELON which is not public data. But the scale, size, importance and multi-decade nature of the project (started in the 70’s and still going strong) is a good illustration of how seriously the USA and it’s partners take signals intelligence and the scale of the budget available for it.

To be a “Google”, Facebook would have to bring in $40 billion a year in revenue which would take them to Google’s valuation of $200 billion. Right now they’re stuck at $4 billion a year.

Facebook is the only social network that matters and will be forever thanks to it’s network effect. It’s hard to believe that the smart people Facebook keeps gobbling up haven’t considered chatting to the global intelligence gathering and cyber security community. The data they have is game changing and something the global SIGINT community would never be able to gather on their own.

Trying to visualize the conversation Zuckerberg might have with the global intelligence community, it reminds me of a quote by Richard Gere’s character in Primal Fear who is a famous defense lawyer describing the conversation he has with new clients: “Have you been saving up for a rainy day? Guess what? … it’s raining!”

Footnote: There is the hard problem that publicly working with the intelligence community would kill Facebook. But then the intelligence community has never been very public and one wanders if there are ways to productize the desired data into something that appears benign and have contractors buy it on the agency’s behalf. Food for thought.

2 thoughts on “A Viable Business Model for Facebook

  1. Do you really believe they’re not already selling information to the government? Facebook is very aware of their business model problem. Combined with the complete lack of ethics displayed by Facebook over and over, it is a near certainty that your information is being sold to multiple governmental and non-governmental organizations worldwide.

    I disagree with your assertion that Facebook will be the only social network that matters forever. Facebook is the next AOL, the next Yahoo. Their popularity will wane like any other social network of the past, though it may take a while given their huge coffers. They also realize this and should take advantage of their current position to secure such government contracts which are hard to displace.

Comments are closed.