The web is agog today with the Facebook IPO of course, but if you look closely, there's some astute analysis that lets us know something fascinating about FB -- and why Second life was so eager to ride on its coat-tails.
MG Siegler lets us know some of the impressive numbers.
"Google had $961.8 million in rev and $105.6 million in profit when they went public."
Really? That's all? They have nearly a billion coming in, and so many costs that they only had only $105.6 million now?
You know, I couldn't help thinking of our own dear Linden Lab. They claimed they had $75 million in revenue for years, and now are reported as having $100 million in revenue (we don't know what the profits are because it's not a public company).
The point is, however, that Linden Lab only has -- soaking wet, if we all really log on -- 1 million regular customers. Or maybe 900,000. Or something. Or is it back up above 1 million? Well, around a million (someone can correct me).
Compare and contrast that one million customers that generate revenue of $100 million for the Lab, a factor of 0.01, with the 800 million customers for Facebook that only generate $1 billion revenue and $105.7 million profit, i.e. a factor of 0.80. What does this mean? I think it means you need more customers on Facebook to generate more revenue to make more, relatively speaking, than Second Life does -- even though MG Siegler calls Facebook a "refined profit machine". (Since I suck at math, I'm sure someone can figure out what this means -- what rate of customers do you need to get a dollar of revenue -- and keep in mind that Facebook was LOSING when it had less customers, so it may require some X number of customers to keep the momentum to get Y dollars).
For more detail on the losses FB suffered over the years, look at Siegler's Alma Mater, TechCrunch, per Alexia Tsotsis.
But here's where it gets really interesting -- and here's another former TechCruncher, Paul Carr, who is on Sarah Lacy's new daily blog Pando (yet another former TCer) who sort of ho-hums -- because this ad agency called "Facebook" isn't really that interesting a business -- but look down in the comments:
This IS interesting:
“We currently generate significant revenue as a result of our relationship with Zynga, and, if we are unable to successfully maintain this relationship, our financial results could be harmed.
In 2011, Zynga accounted for approximately 12% of our revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate a significant number of pages on which we display ads from other advertisers. If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected.”
Wow. Quite the admission! the sort of thing you have to admit in a, well, initial public offering.
It's 12 percent of their revenue! That's a lot. If they lose Zynga, as they almost did in the past, they are way down, and there could be a further knock-on effect. If Zynga was a separate site that added a little social to their games -- all they'd have to do is make some of them like Metaplace with the ability to actually go inside the little Farmville games and talk to other people in chat with your avatar and interact with them, i.e. gift-giving, plant, sit, etc -- and they could have a barn-stormer, and people just wouldn't go back to Facebook. Especially when you think of mobile.
My sense is that Facebook is farther alone in the game than MySpace, but that it could still start to suffer and wane if something better came along that had better privacy and less annoyances. That thing would NOT be Google+, which is now sucking up your data across all its products, whereas before it would leave you along in gmail with your SL avatar name.
Then there's this to consider: whatever that "coefficient" of "refined profit" -- customers per dollar of revenue and what it takes to get them and the expenses for servers and such -- what LL has said is that SL generated $450 million in sales of virtual goods (that includes land presumably_ inworld. So LL has made a platform that generates revenue for OTHER people, creators, merchants, service providers.
Facebook has ap engineers who make money from it, and marketers and social media gurus who consult around it, but can it really be said to provide entry-level means of making revenue online for ordinary people like Second Life? No.
You can toil away in Farmville for hours, and never make any real money. In SL, you can flip land or texture a cube and start making real money.