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Is Facebook's Business Model Built to Last?

written by: Vikas Vij•edited by: Ronda Bowen•updated: 3/1/2011

Does Facebook have a viable business model? The answer is a resounding yes, which makes Facebook the most extraordinary online business success story of our times.

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    Social Networking The Facebook phenomenon has taken the online world by storm in a short period. An idea of a social networking website came about in 2004 when Facebook was founded. Today the website has grown into the largest global online social network, cutting across geographies, cultures and languages. However, many people continue to wonder, does Facebook have a viable business model? Since the concept is still undergoing evolution, various market observers are unable to decide whether Facebook will ever make money.

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    The Power of Facebook Community

    As per the official statistics released by Facebook, it enjoys the loyalty of over 500 million active users. More than half of these active users log on to Facebook on any given day. The average Facebook user has 130 connections or ‘friends’ on Facebook, and creates 90 pieces of content per month. The Facebook community shares over 30 billion pieces of content every month, which includes news items, blog posts, pictures, notes, and web links.

    Facebook has also become a key contributor to the integration between the PC and the mobile phone. More 200 million active Facebook users now use their mobile devices to get access to their Facebook accounts. The Facebook activity of mobile users is nearly double that of non-mobile users. More 200 mobile operators across 60 countries are working to deploy and sell Facebook mobile products.

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    Integration of Facebook with External Websites

    One of the key indicators of the popularity of Facebook is its extensive integration with outside websites. More than 250 million users visit Facebook via external websites every month. On an average, 10,000 new websites integrate with Facebook per day, and till now over 2.5 million websites have integrated with Facebook. External applications are being built by thousands of web developers and entrepreneurs across the world. There is a growing demand for Facebook-friendly apps on multi-media devices. More than 20 million Facebook apps are installed every day.

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    Facebook's Revenue Sources

    With more than half a billion active users spending 700 billion minutes per month, Facebook has created a unique media force that advertisers and marketers will find hard to ignore. Most of the current ad revenue of Facebook comes from small and medium businesses whose products and services match with the average profile of the Facebook user.

    Facebook has also tied up with a few top global brands that offer special deals to Facebook users. Facebook receives a percentage on each such sale that takes place through its platform. Mobile phone companies and other digital device makers who are keen to include Facebook as an integral service in their products also enter into revenue sharing arrangements with Facebook. More such business applications are under development, and the company’s revenue sources are likely to expand.

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    Investors’ Interest in Facebook

    The question does Facebook have a viable business model gets answered effectively with the keen interest it has generated among global investors. The New York Times recently reported that Goldman Sachs has invested $450m in Facebook, which has placed an estimated market value for the company at $50 billion. Facebook’s most valuable asset is its vast pool of personal information of its users. This is priceless information for advertisers and marketers who can promote their products and services in a focused way to their target market. Many users see Facebook as a place to include in their social media PR plans.

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    So...Does Facebook Have a Viable Business Model?

    With the kind of near-universal acceptance that Facebook has achieved in a short period, its market valuations have not come as a surprise to market analysts. Facebook is an idea whose time has come. Its growth rate in terms of getting new Facebook users has still not abated. It has revolutionized the field of online social networking, and there seems to be no competition to challenge its sweeping global success.

    Photo Credit: www.sxc.hu shlomaster