Facebook: $300 million or $500 million … or somewhere in between?

I’ve been getting the question a lot lately: If Facebook says it will increase revenue 70% in 2009, and if board member Marc Andreessen publicly says revenue will be at least $500 million this year, then why is eMarketer’s estimate only $300 million?

I’ll take a moment to explain.

Our estimate covers only ad spending on Facebook, and does not include any other form of revenue. Facebook currently gets some revenue from virtual goods (as much as $75 million, according to one estimate I saw recently). In addition, I expect that Facebook will launch other revenue streams this year, such as payments/e-commerce.

Our estimate for worldwide ad spending on Facebook in 2009 is $300 million. That breaks down to $230 million in the US and $70 million outside the US.

So if you add our estimate of $300 million in worldwide ad spending, plus about $75 million in virtual gift revenue, that equals $375 million. Assuming Facebook launches a payments system, that could bring in several million more in revenue (I don’t have a specific estimate on that).

The end result would still be lower than $500 million, and the reason for the difference is that while I am optimistic about Facebook, I am not as confident as Facebook is on its ability grow revenue 70% this year. With total US online ad spending slated to rise just 4.5% this year (according to eMarketer’s most recent projections) it will be an immense challenge for Facebook to increase total revenue 70%.

I will continue to watch the numbers, so we’ll see how things shake out.

Is Mark Zuckerberg crazy, or can he boost revenue 70% in ‘09?

Yesterday, Facebook announced a $200 million investment from Digital Sky Technologies, a Russian-based investment group that I am sure 99% of the Internet business had never heard of before yesterday. But DST is the company behind some of Russia’s biggest Websites, including Mail.ru and social network VKontakte (an amazing clone of Facebook, by the way).

During the conference call announcing the deal, Mark Zuckerberg reiterated a statement, first made in March, that Facebook’s revenue will increase 70% in 2009. Sheryl Sandberg, in a follow-up interview with PaidContent yesterday, also said:

“Our revenue is doing incredibly well—70 percent year over year (growth) this year means that the ad products we’ve built are working, it means that all of our sales channels, all of our markets international and domestic are very healthy, and it means that our ad models are working.”

The 70% figure first came out in a March 2009 New York Times article on the departure of finance chief Gideon Yu:

Regarding its financial state, Facebook said that in the quarter ending Tuesday, it beat its own internal projections and is on track to increase revenue by 70 percent this year.

Can Facebook actually achieve this goal? I’m doubtful. My eMarketer projections estimate 20% growth in ad spending on Facebook this year, to $300 million. Advertising forms the vast majority of Facebook’s revenue. I said as much to Businessweek in an article about the new funding:

“Where is that [70%] going to come from? I can’t see it coming solely from advertising. Either he [Zuckerberg] has some new revenue stream up his sleeve or he is crazy.”

Investment bank Cowen & Co., in a new report on online ad spending, believes the growth will indeed come from advertising and estimates that Facebook’s ad revenue will increase from $258 million in 2008 to $428 million in 2009. Cowen is one of the few companies aside from eMarketer that estimates Facebook revenue.

But Facebook’s future growth, however large or small, will not be solely from advertising. Facebook already generates some revenue from virtual gifts those little icons that people buy with credits and give to friends) and has been rumored to be considering a raft of other revenue streams, from a developer “tax” to ecommerce to virtual currency. New investor Alexander Tamas, of DST, has experience with payment systems and virtual goods at his other Internet companies.

One wild card: the rumor that Facebook is getting ready to launch an ad network based on Facebook Connect. Such a network would be very, very interesting, but also very, very tricky from a consumer privacy perspective. And, as Business Insider points out, advertisers are more focused on performance networks these days than on targeted brand advertising. The business climate for a Facebook ad network may not be right this year, but it could be the perfect temperature in 2010.

Twitter on Advertising: Let’s Try That One Again

Just a couple days ago, Twitter cofounder Biz Stone was publicly saying that advertising wasn’t part of the company’s revenue plan. Oh, how a few days change things.

In a post on Twitter’s blog, Stone writes, “to say we are philosophically opposed to any and all advertising is incorrect.” He goes on:

“The idea of taking money to run traditional banner ads on Twitter.com has always been low on our list of interesting ways to generate revenue. However, facilitating connections between businesses and individuals in meaningful and relevant ways is compelling. We’re going to leave the door open for exploration in this area.”

Stone then uses the blog to say he’s speaking at the Cannes ad festival next month. Open mouth, extricate foot, keep Cannes speaking gig.

Social network ad spend to fall 3% in ‘09

I just updated my US social network ad spending estimates for 2009, and thanks to a particularly dismal January-March quarter at Fox Interactive Media (ad revenues at MySpace’s parent were down 16% year over year) I now expect the social networking category as a whole to fall 3% this year, to $1.1 billion, from $1.2 billion last year.

If it ends up as I expect, it will be a significant turnaround from the past couple of years, when social network ad spending was growing at double and triple digits.

The biggest reason for the falloff is MySpace, which I expect will make $495 million in the US this year — down from $585 million in the US last year — much of it coming from a deal FIM has with Google for search. Once that deal runs out in the middle of next year, things may end up even worse for MySpace unless its new management can turn the ship around.

I’m expecting Facebook to up its US ad revenues by 9% this year. Depending on your outlook, that’s either glass half full or half empty. To increase ad revenues nearly double digits in a recession is certainly a positive, but the way Facebook is burning through money to fund its growth, I’m not sure 9% is enough. If the company launches its rumored ad network, however — and if it’s successful, which isn’t a guarantee — that could change the outlook.

The bigger story — one that I hope to spend more time measuring and quantifying in the future — is how marketers are using social networks for reasons other than advertising. This, I believe, is where the true potential lies.

Facebook’s European Takeover

Just last month I wrote in an eMarketer report that Facebook in 2009 would take over markets that had once been dominated by regional social network sites. Today, comScore reports that Facebook has become the dominant social network in 11 of the 17 European markets comScore covers.

Most recently, it overtook local favorite Tuenti in Spain. And in three of the 17 countries, Facebook ranks second. The only places it trails other social networking sites are Germany, Russia and Portugal.

So much for the idea that a homegrown site could capture the nuances of local culture.

Social Media Podcast with Smallbiz America

I was interviewed recently by David Wolf of Smallbiz America about social media marketing. In the interview I answer these questions:

1. You’ve been in this space since 1993—-has anything totally surprised you in terms of the ways internet advertising and marketing has unfolded?
2. At eMarketer—-you’ve got a birds-eye view of how the world of social media is changing the landscape of marketing. What does social media do that traditional media simply cannot do?
3. The issue of brand control has certainly been a concern for many companies as they make their entrance into social media. How are you seeing companies manage their brands in a world that’s all about letting go of control, and harvesting authenticity from the consumer?
4. How do you see strategic possibilities evolving for companies that want to participate in social networks as advertisers—-how are they looking to approach the challenge?
5. Do you think it’s more effective for companies to create their own social networking platforms—-or is it a better idea to leverage the existing platforms that have huge traction?
6. How is search marketing evolving—-and what can we look forward to in terms of changes there?

Facebook’s Stream of Consciousness

Today Facebook unveiled new changes to profile pages and also to the Pages (yes with a capital P) that marketers and public figures can maintain.

The changes are complex but essentially boil down into allowing people to have more control over what information they see from their Facebook friends, and to make it easier for people to post whatever they want to and spread the word to both friends and fans. For marketers, the changes mean closer integration into the News Feed that people see when they use Facebook.

One of the biggest changes is to the status update box, which will simply say “What’s on your mind?” instead of “What are you doing right now?” It’s a nod to the fact that people no longer use the box to say what they’re doing, but what they are feeling, thinking, reading, watching, interacting with.

The net net of all of this is that Facebook wants to capture and disseminate the ongoing bits of information that people, companies and public figures say, and the actions that they take. Said Mark Zuckerberg in a note on the Facebook blog: “People will no longer come to Facebook to consume a particular piece or type of content, but to consume and participate in the stream itself.”

It’s a bold, philosophical statement, but it also says a lot about where Facebook thinks it should participate in the stream of discussions and activities of the social Web. And that position it aspires to is right smack in the center.

What does all this mean for social network marketing? I’m honestly unclear at this point. In one sense, the changes Facebook is making to Pages will effectively put a more personal face on a brand. As Zuckerberg describes in his blog, “You can find out that Oprah is reading a book backstage before a show, CNN posted a breaking story or U2 is working on a new song, just as you would see that your friend uploaded new photos from her trip to Europe.” All this information will be pushed to your News Feed, if you are a fan of the brand or person.

This gets into obvious Twitter territory, a place where Facebook very plainly wants to be. Much to pay attention to here.

Tropicana’s Fans Sound a Sour Note

I noticed the weird new packaging for Tropicana orange juice right away and hated it. But I never said anything about it to anyone. I still bought the juice.

But other Tropicana consumers took their displeasure one step further — they took their viewpoints online, to Twitter and other outlets. And thanks to their efforts (and perhaps some additional focus group testing by Tropicana) the brand has decided to go back to the old packaging. As the New York Times reports, Tropicana executives just didn’t see it coming with the traditional kinds of research they do.

“What we didn’t get was the passion this very loyal small group of consumers have. That wasn’t something that came out in the research,” said Neil Campbell, president of Tropicana North America, in the Times article.

We’ve seen this before; UK fans got Cadbury to reintroduce a brand called Wispa by lobbying on Facebook.

“If consumers are speaking, you have to listen,” Tropicana’s Campbell told the Times. And more and more, you simply have to listen online.

The Evolution of Widgets

I’ve been following the changing widget business with some interest lately. While I have doubts about the future of little boxes of purported entertainment that you can cut and paste into your blog or social network profile page, I am pretty excited about widgets that mesh shopping with advertising.

Yesterday, I had an extended conversation with PaidContent, which ran an article questioning the future of the widget economy (and quoting me). I do think there will be a shakeout in the business, and the companies that can create and track widgets that do more than merely entertain you have the best chance of survival.

CNET’s widgets, for example, which are powered by Gigya, provide relevant reviews and shopping deals. Other widget providers such as WidgetBucks create ad units that update automatically with content that relates to the topic on the page.

WidgetBucks ad

I should back up and clarify the difference between widgets and applications, terms that are often used interchangeably. Widgets are chunks of content (often rectangle-shaped) that you can “grab” (by copying some code) and embed into blogs, start pages or social network profile pages. Applications are more full-featured and are designed for a specific platform, such as Facebook. They can use data from a person’s social network profile and take advantage of the connections between friends. I’m not talking about applications here (they have their own issues to contend with).

Much has been written lately about the waning fortunes of the display ad. Widgetized display ads have the potential to bring new life to the format.

Bebo chief: “You would have to trip to not succeed at this at some point.”

That’s what Joanna Shields, Bebo’s chief executive, said in a Wall Street Journal article today (subscription required) on AOL’s plans to relaunch Bebo. AOL bought Bebo for $850 million earlier this year.

The headwinds are firmly against Shields and AOL. Ad support for social networks is not rising nearly as fast as expected, and Bebo, as the WSJ article points out, got just 5.9 million US unique visitors in October, compared to 46 million for Facebook and 76.3 million for MySpace, according to comScore.

Somehow I think Bebo’s “some point” for success has already happened. It was when Michael and Xochi Birch sold it to AOL and headed for the hills.