Reverse Engineering Facebook’s Business Model with Ballpark Figures
Blog: Business Model Alchimist
Originally I was planning to write a post on “Why The Crazy Facebook ($50B) and Twitter ($3B) Valuations Might Just Make Sense” by highlighting the key characteristics of their business model (e.g. scalability). However, I thought it would be way more fun to reverse engineer Facebook’s business model with ballpark figures in collaboration with you, my smart and loyal blog readers.
I sketched out the kernel of their business model and researched/guesstimated some numbers, since it’s always easier to start from something rather than from a blank sheet (or Canvas).
The above Business Model Canvas was sketched out with the Alpha version (V.0.7.0) of our upcoming iPad App. The numbers were researched on the Net and are still far from complete. Hence, your help and insights would be much appreciated.
Some numbers, like the fact that there is a ratio of about 250’000 users per Facebook employee, are pretty easy to find and calculate. Others, e.g. like the ad spending of Fortune 500 companies on Facebook (if anything like that exists) is much more difficult to research. Also, I rely on your knowledge for numbers such as the estimated IT cost of the Facebook platform.
Add your thoughts in the comment section! Below are the numbers I gathered today in my little temporary office in a fairy tale chalet in the Swiss Alps.
NUMBER GUESSTIMATES
Users/Customers
- Number of monthly active FB users: 500M (source: FB factsheet)
- Number of daily active FB users: 250M (source: FB factsheet)
- Average time users spend on FB per month: 1’400 minutes -> 46 min/day (guesstimate source: FB factsheet)
Resources
- Number of employees: 2k (source: FB factsheet)
- Number of servers: ???
Costs
- Average salary (guesstimate): 150k (source: glassdoor.com FB salaries)
- HR costs: 300M (deduction)
- IT costs (guess):????
Revenue Streams
- Advertising – Average CPM: $0.625 (source: Blogpost)
- Annual page views: 3.12 Trillion (source: Blogpost)
- Facebook Credits: 30% revenue cut (source: TechCrunch)
OPEN QUESTIONS
- How high could Facebook’s costs for its IT infrastructure (capital expenditure and operating costs be? This could probably be estimated by comparing to Amazon.com, Google, eBay, or Yahoo!
- How could its advertising revenues (e.g. banners and text advertising breakdown) really be?
- What budgets are Fortune 500 companies putting into Facebook advertising?
- How many SMEs and micro-enterprises are using Facebook for advertising?
- How much could Facebook already be earning from Facebook Credits, even if this virtual currency is still in Beta?
Don’t hesitate to point out any other big things that are missing! This is just a first sketch of a reverse engineered business model!
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