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Social Media Websites’ – Who Is Making What – Insight Into Revenue Generation

Social media sites, notably Twitter, FaceBook, MySpace, YouTube and LinkedIn have become household names and have become an integral part of people’s life so much so that it is tough for regular users to imagine a life without social media.  Social networking websites have become virtual celebrities, with an enormous fan following and all the glitz and popularity that is hoarded on them.  But are they making the kind of money that real world celebrities get to make is the million dollar question.

The people behind these social media websites had remained mute about this until recently, probably because the sudden rush of success was more than a sweet surprise and they themselves did not know how to monetize the maddening popularity received by these websites.  Of late, there seems to be lot of thought put into revenue generation and the paparazzi is finally getting their questions about revenue answered.  Here is a report of the popularity score of some social media giants and relatedness of their respective revenue generation.

Facebook

 

Facebook

Brief History: Originally called “thefacebook”, Facebook was incorporated from a hobby of Harvard student Mark Zuckerberg.   The hobby soon crossed the realms of Harvard dorm rooms and Facebook was officially launched inFebruary 2004.

 

Key takers: High school and college students.

 

Finances: Facebook initially received a $500,000 funding from Peter Theil, co-founder of PayPal.  A few months later, it received a $13 million financial aid from Accel Partners and another 425 million from Greylock Partners.   A sum total of $40 million was conjured up to kick start the venture in a big way.

 

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FaceBook today: Facebook is one of the fastest growing social networking websites today.  Its interactive features and its global appeal have helped in its membership going viral.  Facebook now has over 250 million active users, with over 30 million active users accessing it through mobile devices.

Revenue generation:

  • August 2006 was a milestone year for Facebook as it signed a three year deal with Microsoft to provide and sell ads on their website for a revenue split.  Silicon Valley entrepreneur Mark Andreessen who is also a board member of Facebook holds that Facebook would make well over $1 billion in the year 2009 if it pushed harder on selling advertisements.
  • In the year 2008, Facebook was able to rake in $350 million, a huge progress from its 2007 revenue of $150 million.  (Source:  http://news.cnet.com/8301-13577_3-9862792-36.html)
  • However, the company had a $150 million negative cash flow for the year 2008, a deficit created by its $50 million EBITDA expenditure.
  • But,  Andreessen has said that Facebook is on track and has expressed confidence in generating about $500 million revenue by the end of 2009.  The recent acquisition of social media site FreindFeed is sure to feed some funds as well.

The Verdict: The financial history of Facebook and the recent business developments indicate that Facebook is in a safe mode at the moment and also holds promise for upscale revenue generation moving further.  The company is full of investor cash including $240 million from Microsoft that nails Facebook at a massive $15 billion evaluation.

Twitter

Brief history: Twitter was the outcome of a daylong brainstorming session by the board members of the podcasting company Odeo.  The first prototype of Twitter was designed for the internal use of Odeo employees, which was later developed and launched for public use in July 2006.  But Twitter spun off as an official company in April 2007 when Biz Stone, Even Williams, Dorsey and other members of Odeo formed a formed Obvious Corporation and acquired Odeo and all of its assets including Odeo.com and Twitter.com from the investors and other shareholders.

Key Takers: Unlike other social networking sites, it is difficult to single out a particular kind of users who use Twitter most.  Twitter has gained wide popularity across the globe with diversified user population ranging from college students, entrepreneurs and entertainment freaks.

Finances: Twitter is backed by Union Square ventures, Digital Garage, Spark Capital and Bezos Expeditions.  Though Twitter has kept its funding under cover, its first round of funding is rumored to have been between $1 million and $5 million, followed by an equally enormous second and third round funding, all totaling up to an approximate US$57 million.

Twitter Today:  Since its creation in 2006 by Jack Dorsey, Twitter has gained notability and popularity worldwide.  Between the year 2008 and 2009, Twitter has seen a monthly growth of 1,382 percent.

Revenue generation:  Twitter has always been discrete about its revenue and has evevn projected losses in its earlier announcements.  However,  in an unfortunate incident,  one of Twitter’s computer was hacked and its revenue information was published by TechCrunch.  The records contained Twitter’s internal projections for 2009 that indicated revenue of $ 400,000 in the third quarter and a $4 million in the fourth quarter in its net earnings.

The data has projected that Twitter will have over 1 billion active users by 2013 and its future revenue run rate, a massive $140 million by the end of 2010.

Twitter co-founder Biz Stone has said that the company is developing various add-on tools and services for the businesses and professional users of Twitter, which could create a revenue stream for the company. He said Twitter plans to introduce some of these tools by the end of 2009.

But Stone dismissed the notion of selling advertisements on the popular service at least for the 2009, even though ad revenue is the main way most web start-ups manage to stay in business while keeping their service free for consumers.

The Verdict: Until recently Twitter was believed to be running a loss, and that did not seem to surprise anyone because sudden appraisal of fame and authority can be a bog down.  However,  the recent Twitter revenue leakage and the fact that Twitter did not retaliate to this in a big way seems to confirm that Twitter has a sound financing system or is at least in the path of stabilizing its finances.  And the unstoppable viral spreading of Twittering practices only adds to the joy of great finances.

MySpace

 

MySpace

Brief history: MySpace was the brainchild of eUniverse employees who developed their first social networking venture Friendster into MySpace to support a larger network of users across the globe.  A complete infrastructure of finance, human resources, technical expertise, bandwidth, and server capacity was available for the site, right out of the gate, so the MySpace team wasn’t distracted with typical start-up issues.

 

Key takers: “A place for friends” is how MySpace describes itself.  MySpace since inception has been presumed as a hub for the young and dynamic.  The site lays little restrictions on users and hence appeals to the youth more than business networks who are concerned about security.

Finances: When MySpace’s parent company eUniverse was sold for US$580 million in July 2005, approximately $327 million was attributed to the value of MySpace.

 

MySpace Today:  MySpace is one of the oldest social networking sites.  It boasts of an online population of 83 million and is continuing to explode.  However, other networking giants Twitter and FaceBook and social media websites like YouTube have been hogging the limelight MySpace enjoyed a couple of years ago.  Recently, MySpace made some design and feature enhancement, signaling a move towards revamping and adaptation to user demands.

Revenue generation:

  • MySpace has been clear and open about its revenues and leaves little to media and user speculation.  All its revenues are sourced from advertising.  Being a powerful advertising platform, next only to Yahoo, MySpace has been able to generate profitable net revenue.
  • In August 2008, Google a $900 million deal with MySpace according to which Google was entitled for a Google search facility and advertising on MySpace.

 

  • Richard Greenfield, an analyst at Pali Capital, expects MySpace to rake in  $700 million to $800 million in revenue in fiscal 2008, mainly through advertising.

 

  • Though Facebook’s advertising model poses a threat to the monopolistic social networking advertising model initiated by MySpace, MySpace has proved its upper hand in the case in its advertising revenue reports showing a $585 million earning in fiscal 2008 and $495 in fiscal 2009.

 

  • However the rate at which Facebook is capturing the social media advertising platform offers a serious threat to MySpace’s income generation.  In a matter of year or two, Facebook is expected to race past MySpace in providing a viable advertising platform for advertisers.

 

 

 

The Verdict: Although FaceBook has posed a tough competition to MySpace, the business networks on MySpace have been loyal users and its advertising model.  But FaceBook has been racing fast to overtake MySpace in terms of user popularity as well as revenue generation.  It is one track of surpassing MySpace in ad spending by 2011.  At present, it is still large enough to sustain its expenses and leave behind a decent amount of profits.

LinkedIn

 

LinkedIn

Brief History: LinkedIn was launched in May 2003 with the sole intention of connecting different business networks.  The credit for the launch of LinkedIn goes to Reid Hoffman, an influential personality in the Silicon Valley.  Unlike other social networking sites LinkedIn was focused about its goal and has remained true to its intensions till date.

Key Takers: LinkedIn is a business networking website that appeals to professionals, budding entrepreneurs, or anyone who is looking at serious business networking.

Finances: LinkedIn raised $53 million from Bain Capital Ventures, Sequoia Capital, Greylock Partners, and Bessemer Ventures.  It had raised $27 million from its three previous rounds, totaling an $80 million funding, good enough to keep it afloat, even when its advertising revenue is excluded.

 

LinkedIn today: since its inception. LinkedIn has been a respected service that is used by a growing number of professionals.  On its 6th birthday, LinkedIn had 40 million users.  It has been clear in its goal and is carrying forward its essence slowly but steadily.

Revenue generation: LinkedIn had a robust revenue generation plan from inception and over the five odd years into social networking, it has executed its revenue generation plan effectively and monetized its potential in every possible way.   Its revenue generation plans include banner ads, subscriptions, revenue earned from the fee charged on job listings and its corporate sales to Symantec, MTV and others.

LinkedIn claims to have over 1000 job listings. If we assume that this is how new jobs are posted monthly,   even a $145 charged per job would LinkedIn would earn $1.75 million annually.  And that’s just about job postings yet.

The rumored valuation of LinkedIn’s financing round amounts to $250 million.

 

The Verdict: LinkedIn may not have the shocking bombardment of population and popularity that other social networking sites like Twitter witness.  However it has a distinct purpose and even its revenue has been streamlined to serve its purpose of networking business contacts across the globe.  LinkedIn’s finances are in place and it has enough to fund even its future ambitions.

 

 

YouTube

 

YouTube

Brief history:

 

The concept for YouTube was borne out of a commonplace situation when Chad Hurley and Steve Chen, two ex-employees of PayPal had difficulty exchanging videos in the early months of 2005.  The idea of YouTube as a video sharing community site took shape following this incident. A beta test of the site was offered for public use by May 2005, which received great response from users.

The venture was initially backed by a $11.5 million funding by Sequoia Capital in the early months of 2006.  By July 2006, barely months after its release,   the company announced that more than 65,000 new videos were being uploaded every day, and that the site was receiving 100 million video views per day.

Key Takers: You tube’s user population is enormous and as diversified as the kind of videos it has.  While a single user may visit YouTube several times a day, even after making this a regular habit for a year, he/she may not taken note of a complete genre of videos that are in store at YouTube.

Finances:  Google announced the acquisition of YouTube for $1.65 billion in October 2006.  The revenue generation and expenditure figures ever since have been kept under cover by Google.  In March 2008, YouTube’s bandwidth costs were estimated at approximately US$1 million a day.

YouTube today: YouTube is a dominant provider of online video in the United States, with a market share of around 43 percent and more than six billion videos viewed in January 2009.  In May 2009, YouTube’s traffic doubled, with 12.6 million unique visitors visiting the site.  Clearly the growth of YouTube has been stupendous with each passing day, and why not, people do find visual more appealing than static content and data.

Revenue generation:

  • YouTube’s revenues in 2007 were noted as “not material” in a regulatory.  In June 2008, a Forbes magazine article projected the 2008 revenue at US$200 million, noting progress in advertising sales.
  • However, recent developments in the revenue generation front show varying channels of income generation.  In one “test” initiatives towards monetization, YouTube decided to allow partners to charge users for downloads.  YouTube “selected” certain partners who could offer their video downloads for free or for a fee (determined by the partner) paid through Google Checkout. Most videos in the test are currently charging about $1 each.
  • In another similar monetization initiative introduced in the wee months of 2008,  YouTube promoted video program by allowing publishers to place bids for their keywords in order to achieve relevant keyword placement on YouTube search.  This is similar to Google’s auction mechanism for Adwords.

The Verdict: YouTube is arguablythe most popular andliked social media website yet.  While all social networking sites see some threat about waning popularity sometime in future,  YouTube seems to hold on to its monopolistic popularity as a video sharing enterprise.  The efforts made by YouTube to monetize its popularity also seem to be taking the right direction and the prospects for its revenue generation appear bright.

Flickr

flickr

 

Brief history: The launch of Flickr has been credited to a Vancouver based company called Lunicorp.  Flickr emerged out of tools originally used for Lunicorp’s massively multi player online game “Game Neverending”.   In no time, flickr had carved out its niche to attract users that overpowered that generated by the game.  Soon Game Neverending was stalked to develop Flickr more seriously.   The website is currently under Yahoo’s acquisition.

Key takers:  The active users of Flickr are obviously photography enthusiasts, not only the ones who are into photography and upload unique photographs taken by them, but also viewers who appreciate good photography.

Finances: The initial investment for Flick came from the revenue that gaming gun “Game Neverending” popularity had generated.  Flickr has a neat revenue generation model and this has sustained its expenditure.

Flickr Today: since its inception, the features on flickr have been evolving for the better.  The FAQ section on flickr still bears “gamma”, meaning further changes in its features can be anticipated by users.  What started as a multi-user chat room has come a long way and flickr has always been sensitive to the user preferences and has updated its features accordingly.

Today, Flickr attracts more than 44 million unique visitors a month and has over 30 million unique visitors and 70.2 million page views in a month.

Revenue generation: flickr is often criticized for under- monetizing its popularity. Though it has provides an advertising platform, it makes bleak revenue out of this.  Instead, most of its revenue is earned by selling Flickr Pro memberships for $24.95 a year.  A certain percentage of its income is generated from e-commerce services through partners such as photocards, posters, frames and calendars.

In calculating revenues earned from such means, a hypothetical estimation for 10% of its 44 million unique users should generate revenue between $60 million- $120 million.  Plus another $10 million from its e-commerce venture.

The Verdict: At present Flickr’s revenue generation seems to be neat. However, it can conjure up more innovative revenue generating plans and popularize it more effectively.  The upgradation of features is quite fast paced at Flickr.  Once this is stabilized, alternate revenue plans can be thought of and applied for a healthier income generation.

(Sources: Facebook, Reuters, Wikipedia[1],  Techcrunch [1, 2] Independent.co.uk, Agriya Blog, USA Today, Practical Commerce, RWW, LinkedIn, Markevanstech [1])

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About the Author

Vikas Sah is the Founder and CEO of Zitz Solutions. He has great interest in internet marketing in particular in Search Engine Optimization and Social Media Marketing. Connect with him on: twitter, LinkedIn

 

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Comments

One Response to “Social Media Websites’ – Who Is Making What – Insight Into Revenue Generation”
  1. Tahir says:

    Vikas excellent article. I think we can see as more and more people migrate from MySpace to Facebook the shift in profits will be correlated. One question I had, who makes up the “Other” social networks?

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