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The Facebook lesson: urgent need to re-examine the business model

india Updated: Feb 22, 2009 20:41 IST
N Madhavan

Imagine you are a hotel owner and have guests who leave their things in their rooms. When they come back from an outing, you tell them that their stuff is all yours, because it is your hotel. Something similar nearly happened this month, but with a minor catch. The "hotel" in this case is "Facebook," the social networking site on which people put up everything from family photos and event listings to notes and personal information. Facebook, unlike a hotel, does not charge money and thereby hangs the curious tale of how Internet's new phase, Web 2.0, is going.

Ever since Google happened, companies have been trying to make money with advertisements centred around pictures, words and other content that people upload to share their ideas, views, photos and impressions. It works for Google, the search engine which basically focuses on advertisment revenues linked to keyword searches that throw up ads related to the searched words — with amazing relevance. But this gave rise to an over-optimism on "user generated content" of the kind Facebook has been championing.

But if you take away search, and look at aspects like blogs or other content, the model is shaky. Facebook is a rage across the world, but is yet to find a clear way to make money. Contextual ads based on content and personality profiles are seen as they way to go but this is far from mature. For entrepreneurs, asking people to share content and trying to ride piggyback on it seems an easy way out.

I call this "loser generated content" because most of the users are either used themselves without adequate compensation (Google has its Adsense programme that gives a share of revenue to bloggers and content providers, but I think the utility is rather limited). I think quality content deserves to be selected carefully and paid for adequately, but it suits techies and some entrepreneurs to think good content is for free.

If you look back, Hotmail, founded by Sabeer Bhatia, was predicated on advertisements generated with e-mail views, but 12 years after it was founded, that is hardly a phenomenon. Hotmail is now almost an also-ran in the e-mail game.

The Internet goes through fancy ups and downs. The current Facebook controversy and the "user generated content" bit may also need to get a reality check.

Personally, I would rather pay a fixed amount of money, say, one US dollar a month, to use Facebook. Relying on advertisements seems an outdated way. Technology and content have their own utility to Net users. They do not necessarily need advertisement support, though other business models and revenue options need to be researched to make this happen.