Facebook’s Business Model

May 19th, 2012

Chris Dixon argues that the right question to ask when thinking about Facebook’s future is what their business model will be:

The key question when trying to value Facebook’s stock is: can they find another business model that generates significantly more revenue per user without hurting the user experience?

Absolutely right. I have a couple ideas that revolve around Facebook getting users to connect their credit cards to their accounts. If Facebook can do that (and they’re already set up to do so with Facebook Credits), it’d open up a lot of opportunities for them:

  • They could be your wallet, like Square. No need to ever use your credit card, and get deals or discounts for checking in on Facebook.
  • They could be your wallet for online purchases, too. No need to create an account at every online store you shop at—just use your Facebook account.

Imagine the kinds of recommendations Facebook could make for users based on the data they have. They know who you are, where you’re from, who you’re friends with, what you’re interested in and, if you check in to places on Facebook often (which a lot of people do), they know the kinds of places you like going to. Using that data, Facebook could make a really, really good restaurant or event recommendation tool. And if they were your wallet, they could make recommendations to users—you’re within half a mile of this Indian restaurant you’d love—and process the purchase of, say, a group offer available at the moment. In other words, they could fulfill the full process, from recommendation to purchase, and receive a referral from the restaurant (or whatever place it is). That’s a big deal.

I wouldn’t be surprised if this is the direction Facebook ends up going. It’d certainly be a good source of revenue and it would make them even more ever-present in our lives.