Facebook Services to Remain Free
Observers have long wondered if Facebook could convert its 400 million plus users into actual profit – and if and when the social networking giant would start charging businesses for services it currently provides for free.
Well, the privately-held Facebook "has been profitable for a long time," the company's chief operating officer Sheryl Sandberg said in an interview with the U.K.'s The Sunday Telegraph. And the site will focus on being an "ad-based business," she said – not on fees for functions.
"You are right that a lot of the products we provide for businesses are free - we love that," she said. "And we think that if those free products work - and they do - then people will advertise against that and spend money against them to promote them."
She added: "We want the world to use Facebook and I think the best way we get revenue is when people put up the page and it is all free and then they advertise to show people where the pages are. You've got to show people you've arrived. If I'm a business I can advertise to the whole world or to the people in Liverpool. We offer at both ends of that spectrum."
Sandberg trumpeted the site as the "best platform" for brands to build awareness – challenging even television, she claimed. The site's unique strength is in users' interaction with the ads – and in its ability to promote and hit the fast-forward button on viral marketing.
"Facebook is genuine two-way," Sandberg said. "When you put an ad on Facebook, users can interact with it and, more importantly, they do it publicly. If I watch a TV commercial and I like it I might tell my husband sitting next to me and that's it. If I see an ad on Facebook and I like it, I give it a 'thumbs up' and my average 130 friends see I like it and it spreads."
She said Facebook planned to be careful that advertising didn't intrude on users' experience and turn them off.
"We are very conscious that this is people's space and that's why our ads look and feel the same as the rest of the site," she said. There will be no big pop-up ads – only ads that interact with users like everything else on the site.
"So, when Alice In Wonderland opened and bought an ad saying 'come see it', people could RSVP just as if the invitation had come from a friend," she said.
As for Facebook's long-term plans: An initial public offering is the company's ultimate goal, but for right now there's no plans for one because profits are enough to fund growth.
"We've been profitable for a long time, we're cash-flow positive ahead of our forecasts and we're doing very, very well out of that model," Sandberg said.
"The more people that use Facebook, the more inventory we have for adverts and the more useful it is for advertisers. The key question is: when we see our usage go up, do we see our revenue go up? And the answer is 'yes' in really compelling ways."
On Friday, Facebook bought Divvyshot, a Y Combinator-backed San Francisco startup that launched in March. Photo-sharing company Divvyshot – founded by 25-year-old Sam Odio – was in the middle of raising an angel round when Facebook appeared with, presumably, a better offer. (Terms of the acquisition weren't disclosed, though Odio at least got a free breakfast out the courtship: eggs, sausage, homefries, and a blueberry shake, he tweeted.) More than three billion photos are uploaded each month on Facebook.
What do you think? Can Facebook build a large enough business through advertising alone?
Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.