Wednesday, March 25, 2009

Is Facebook the web's Wal-Mart?

So says Michael Brush on MSN Money:

As a one-stop shop that lets users easily build networks of friends to share news and photos, join groups and search for school and work buddies, it has the potential to bury MySpace, and other competitors the way Wal-Mart has busted local retailers.

In fact, even giants Google (GOOG, news, msgs), Yahoo (YHOO, news, msgs) and Microsoft's (MSFT, news, msgs) MSN might be getting nervous, because tools such as instant messaging and e-mail are built right in.

Brush notes, citing Nielsen, that time spent on social networks and blogs grew 63% from December 2007 to December 2008. Also, the fastest-growing age-group is 55-plus, followed by 45-54--this is not actually surprising, since pretty much everyone else under 55 is already on networking sites.

Brush's thesis is that Facebook's biggest advancement is not in sheer numerical growth (amassing of members and production of traffic), but the fact that as it grows it takes over more and more of the functions of other sites--IM chats, MySpace's music pages, etc.--as Brush notes, a one-stop shop. This is convenient for users, but by its very nature creates a monopoly that drives more specialized sites out of market share.

The difference, of course, is that Facebook is not a straightforward profit-making enterprise like Wal-Mart. It relies on ad dollars and more nebulous notions of network-building followed by profit:

In the end, however, Facebook knows so much about its users and has gotten so big -- so much like Wal-Mart -- that it's likely to find some way to make a decent profit. "When you gather a large enough audience, the means will come in terms of generating significant revenue from that," says Darren Chervitz of the Jacob Internet Fund (JAMFX).

Facebook is growing so fast that it might even be a threat to the Internet giants someday, one analyst says.

By 2012, Facebook could surpass Google for total worldwide unique visitors, predicts RBC Capital Markets analyst Ross Sandler.

One reason is that so many people now use Facebook as their starting point on the Internet -- instead of a search engine or a portal. Whether Facebook will actually hurt Google's profit margins, or produce Google-size profits, remains to be seen.

Facebook long ago locked the network-building phase of the project, now they just need to make sure they can keep getting money out of it. The more niches they conquer and the more market share they gain, the easier this will be--just as long as they don't bombard users with enough ads to kill the goose that laid their golden egg. But if Facebook really does get big enough to rival Google (something of which I remain skeptical) then networking users will have fewer alternatives to run to--at least until the next big thing debuts and the life-cycle starts over again.

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