Facebook's Revenue Management Strategy

Facebook has been trying hard to capitalize on its popularity with the college set and "do a Google" by basing his profit strategy on advertising revenues. Unfortunately, its members seem to show more interest in catching up with their friends or pseudo-friends than paying attention to banner ads, and Facebook's recent efforts to track and publicize what members are buying on other websites created a backlash (it didn't help that Facebook initially refused to let them opt out, on the grounds that people don't understand what's good for them, or, in the words of a company vice-president quoted in the New York Times, "if [features such as the mini news-feed] are not well understood at the outset, one thing we need to do is give people an opportunity to interact with them [and] after a while they fall in love with them".)

But with college students' happily announcing their "friendship" with hundreds of classmates to look popular and well-connected, it is becoming increasingly obvious that most of the relationships are "a lot of noise." As explained in an article published in the October 18, 2007 edition of The Economist (entitled "Social graph-iti"), "social networks lose value once they go beyond a certain size." Furthermore, evidence suggests that "the future of social networking will not be one big social graph but instead myriad small communities on the internet to replicate the millions that exist offline." The fact that Facebook's members "communicat[e in large crowds] without expressing specific interests", in contrast with Google's users who "have expressed specific intentions by typing search queries", certainly doesn't bode well for Facebook.

What amazes me with all this is why Facebook doesn't attempt to capitalize on its users' eagerness to have a lot of friends. I don't understand why its management hasn't come up with a Facebook-specific revenue-making strategy, for instance, some kind of hierarchy between "best friend", "good friend" and "friend" where everyone would receive, say, 5 "best friend" tokens and 10 "good friend" tokens for free (and an unlimited number of "friend" tokens), and would need to pay a small sum for extra "best friend" and "good friend" ones, say, $5 each, valid for six months - it makes sense to have the tokens expire since college-aged students don't necessarily remain friends for very long).  How many students would be willing to say to a best-friend request "sorry, but I've already used my five tokens and you're number six", and how many would buy an extra token to keep the peace? It would make for some interesting conversations in college dorms.

Comments

[FF]

I like the idea of charging for "good friend" and "best friend".
It would help to reduce the noise because it provides a good excuse
to reject requests (e.g., sorry I have spent too much this month, I am
out of tokens).

[Colm]

facebook has already tried to make money through "gifts". Users are able to give gifts (small pictures) to friends which appear on their profiles. The first gift is free and gifts thereafter cost $1US.

This was rather unsuccessful in my mind as it doesn't seem that popular, and has generated a backlash in the form of various "free gift" applications.

If facebook were to charge users for the number of friends they have, I think it would generate a backlash and lose it's user base to other social networking sites such as Bebo etc.