In the face of this economic downturn the social media biggies are facing the crunch as much as many others. There has been more than one instance when we have come across news about Facebook looking for additional financing and how Twitter is trying hard to bring in a business model that will help them make money. For some, it’s hard to believe that one of the fast-growing websites, Facebook, is unable to keep up with their ever-increasing expenses and is in deep need for debt financing. For others, it’s extremely strange that a website of the likes of Twitter doesn’t have any revenue model and that they completely survive on the venture capitalists.
Facebook has been getting its supply of credit from a number of sources however the recent necessity comes after it failed to extend its contract with TriplePoint Capital, a venture lending firm in Silicon Valley. As per the BusinessWeek article, Facebook has already raised more than $500 million in debt and equity, which in itself is an enormous amount for a startup. Facebook’s largest expenses are from their equipment lease lines and the humongous storage that they require. The ever expanding user-growth brings in higher expenses for computer servers, storage and internet bandwidth.
On the other hand, Twitter is in the news with the speculation as to how it will make money. Twitter is still struggling to find a fool-proof model to make revenues. We have already seen some of us express our opinion here on Capping IT Off blog posts (The inevitable end of free Twitter and How you could end up on the Canary islands using Twitter). However with the recent developments, it is becoming even more evident that we are soon going to see paid accounts for Twitter. News is already doing the rounds that we will see a fee-based subscription service, planned to be introduced by Twitter, before the end of this year. In my honest opinion, Twitter has lost, one chance too many to make money. There are way too many business models (applications) out there which are banking on Twitter’s innovative concept and ever-growing user-base. Can Twitter just keep the product as it is and let the outside world build on it? Do you think a fee-based structure for the apps as well (like a royalty), will help any bit? Or is it too late for Twitter to run this race? I think we will have to wait to see how Twitter weathers this storm!
With all these issues worrying the Facebooks and Twitters of social media, are we going to see a lot of acquisitions in this field as well? We saw Orkut and YouTube taken over by Google, Flickr by Yahoo and a few others. Already there are rumors of Microsoft taking over Facebook. Are we headed for a consolidation in the IT segment, with just 3-4 big players in the battlefield, to an extent that each can provide you with all the products and services from mainstream enterprise packages and social media to data centers and cloud computing? Would Microsoft acquire Facebook? Will Twitter be bought over by another big fish?
The point I am trying to make here is: has the economic downturn hit the social media biggies as well? A discussion with fellow bloggers Rick Mans & Lee Provoost and we had some more questions that cropped up – Has the current economic crunch suddenly exposed the weak business models that the Facebooks and Twitters have been (luckily) surviving on? If it was a thriving economy, would it still raise the same concerns? When I had a chance to have a word with Andy Mulholland, he had an interesting point; with social software, has the “who buys” and “why” question of enterprise applications been replaced with “who uses” and “for what quantifiable benefit”? Just some of the thoughts running in our heads, however only time will tell if this will get the best out of them or will they crumble, just like another dotcom debacles.
As I close, here is another article (Who Will Monetize Social Media?) that I came across recently and I will leave you all with these thoughts to ponder upon.
Nikhil Nulkar is a knowledge management consultant within Capgemini and is passionate about web2.0 and social media. Want to know what he is up to? Follow him on Twitter