Facebook Missing Out On Profits

Analyst says the social networking site may need to change its business model to remain viable.

K.C. Jones, Contributor

May 15, 2009

2 Min Read

Facebook is likely to miss out on profits under its current business structure, according to a recent report.

Analyst Lauren Rich Fine compared the top social network to a local mall and said it may be time for Facebook to "start charging rent" like mobile carriers. The report from ContentNext Media found developers who use Facebook will profit, while the social networking site itself misses out.

"Advertising on social nets will never be commensurate with the amount of time people spend on them," Fine said in a statement released Friday. "And Facebook has made several failed attempts at innovative marketing efforts that members loudly rejected."

The report, which examined the leading social networking sites, documented more than $25.2 billion in social marketing and advertising and investment activity in 902 transactions over the past 27 months. It found that gaming has been the largest subcategory in venture capital investments, drawing more than $800 million.

Fine warned that excitement over virtual currency has been driven mostly by the novelty of it and interest "could come to a screeching halt." She said that the era of merging social and mobile networks has arrived, and social networking sites can succeed by modeling mobile carriers.

However, mobile growth is not a cure-all, according to Fine, who cited concerns about costs and confusion about hardware and added that mobile growth alone isn't enough to drive profits for social networking sites.

The ContentNext Media report, "Following The Money: An Analysis Of Business Strategies And Deal Making In Social Media," is part of a series that examines digital music, online news and political sites, online fantasy sports, Web content-management systems, and online ad forecasts.

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