Why Facebook can’t and will not monetise via advertisements?

Many believe that  advertising is the only way for Facebook to monetise their business. But I think they have other tricks up their sleeves.

If advertising is the only way, then Facebook is in deep trouble. That’s because every piece of advertisement takes away a little piece of what’s left of the most important asset their business has—goodwill in the form of trust. Note that I’m not saying that Facebook engenders and inspires trust in their users in the first place. Rather, whatever remaining trust Facebook has, it is their most important asset that will be eroded further if they stick more advertisements on their users’ face. Each piece of remaining trust that gets chipped away will result in Facebook haemorrhaging  more users and reduced participation and time spent by them. In the context of mobile devices, the loss of trust due to advertisements is more pronounced because mobile devices are perceived to be more intimate then web browsers running on traditional computers. Therefore, it is open knowledge that Facebook has problems trying to solve the problem of monetising through mobile devices. Anecdotal evidence suggests that user resistance will be very  strong if they see advertisements pop up on their Facebook  app.

So, what can Facebook do? Advertisement is a dead-end path for Facebook. Once marketers take over Facebook users’ screen, the golden goose is as good as dead. Facebook urgently has to find alternative means to make money. What can they do? That’s where I think is an opening for them and they are now working hard to exploit…

You see, the biggest problem facing all social media platforms  is the deluge of streams of updates a user has to face. Each user can have  hundreds of friends/followers/followee. Twitter is the worst example because  I’ve seen people following tens of thousands of people and have the same number  of followers (see Madness of chasing Twitter ‘popularity’ for zero authority). If all these deluge are not filtered, highlighted or processed,  social media will wither as users get overwhelmed.

Facebook partially solves this problem with their EdgeRank algorithm to filter  out updates. But it is not perfect and may not work the way their diverse users  expect or want. Twitter, on the other hand, does not have a native viable filtration  feature. Google+, is still new and relatively few people are using it—they  haven’t reach the stage where filtration/processing is  needed.

Recently, Facebook has been providing a Software Development Kit (SDK) on the iOS platform. Basically, they are providing iPhone/iPad/iPod programmers tools to interface their apps with Facebook. By providing an SDK, Facebook is opening the door for  third-party developers to solve this problem. Facebook has a mass of information  about their users and their connections. This information can be organised, processed, filtered. With the SDK, apps can better access this information and provide  different perspectives for diverse types of users. Currently, there’s only ONE  perspective- Facebook’s perspective through their official app and website. If  different types of apps can offer alternative perspectives, it can extend the  usefulness of Facebook as a platform. For example, there can be an app  that is tailor-made for business executives to network using their Facebook’s network of  contacts. Or there can be an app for people who like to comment on  Facebook-enabled blogs on a single location (the app). Or an app for single  people looking for partners. The possibilities are  endless.

So, by providing SDK, Facebook is taking yet another  step to turn themselves into a platform for which applications, apps and  web-services can sit on. Should this take off, Facebook will have another  monetisation means (other than just selling advertising)—charging ‘rent’ on  businesses that access their platform. You see the beauty of this business model? It reduces their reliance on advertisements for revenue and makes them fade into the background. By fading into the background, they have a much better chance of reducing their trust problem.

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