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Will Facebook use boatloads of cash to dominate mobile?

Having passed giants such as Google and eBay in Web site traffic and the latter in valuation, Facebook has the huge user base and financial backing to dominate the mobile space in 2011 and beyond. But will Mark Zuckerberg & Co. find the right monetization strategy?

Facebook has raised $500 million from Goldman Sachs and a Russian investor in a transaction that values the company at $50 billion-plus, and as part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for the social networking giant. More than 200 million of its 550 million-plus users access the site regularly via mobile devices, offering Facebook an opportunity to be the dominant player in the industry if it plays its cards right.

?If Facebook treats mobile as a unique platform as opposed to a mere extension and invests in mobile services like it has done with Web services, then this money will have a huge impact on mobile marketing and commerce,? said Michael Dowling, CEO of Interpret LLC, Santa Monica, CA.

Healthy growth
The social network has been highly effective at attracting and retaining eyeballs. In fact, it was the most-visited Web site and the most searched term overall last year, according to Hitwise.

Facebook accounted for almost 9 percent of all site visits in the United States, compared to just over 7 percent for Google, per Hitwise.

In August, U.S. Web users spent 41.1 million minutes on Facebook compared with 39.8 million minutes on all of Google's Web sites, including YouTube, per comScore.

However, the key question remains: How will Facebook monetize its substantial assets without alienating its user base?

Its potential is undeniable, but is Facebook really worth more than eBay, Time Warner and Yahoo? Is this a replay of the dot-com days of the late nineties? Can Facebook live up to the hype?

Its 2010 revenue was estimated to be somewhere in the range of $1.2 and $1.5 billion, but Facebook has depended largely on display advertising and has not come close to fulfilling its monetization potential.

?There will be many detractors who will say this is the mark of a bubble for sure, yet Facebook has grown among active social networkers to 90 percent [of market share], up from 64 percent at the start of 2009,? Mr. Dowling said.

News Corp.?s MySpace has declined to 26 percent from 58 percent during the same time period, per Interpret.

Mr. Dowling said that even with two-thirds of the U.S. population now social networking, Facebook has clearly remained relevant, suggesting it is a platform and not a passing fad.

While the Internet is still the primary way consumers access social networks, with 79 percent doing so, the growth of the mobile phone as a device to access social networks has increased by 12 percent in the last quarter alone, again per Interpret.

Even more remarkable, smartphone owners are three times more likely to access their social network through their phone?46 percent of smartphone owners versus 19 percent of social networkers in general, according to Mr. Dowling.

Considering smartphone ownership has grown 29 percent in the last year, this trend can bode well for Facebook, provided it puts the influx of money towards mobile services.

It is vital for Facebook to find the right mix of monetization tactics.

If Facebook is too conservative, it will not live up to its heady valuation. If it is too aggressive, it could end up facing challenges similar to what rival MySpace has faced.

However, recent initiatives such as Facebook Places, Deals and Coins point to areas that show a lot of promise for the social network to expand its reach throughout the mobile, local and location-based services ecosystem.

Mobile commerce offers another huge opportunity.

?Facebook did not really need to raise capital, unless it was planning to chase a large market opportunity that will require significant investments dollars?enabling mobile commerce through mobile wallets,? Mr. Dowling said.

?Facebook Coins is a toe in the water to a much larger opportunity?collecting a fee on every transaction enabled through the Facebook platform,? he said.

?It would behoove them to differentiate from the likes of Apple and Google by developing an economy versus merely a store.?

Incremental mobile social commerce
Businesses of all stripes are flocking to Facebook and encouraging users to Like their respective pages, and some are even advertising on the social network.

But do those Likes translate to companies? bottom line? And how many Facebook users are actually clicking on, or being influenced by, those ads?

The true potential of the platform lies in closed-loop campaigns that are targeted for optimal relevance and that include the ability for consumers to complete a transaction without ever leaving the site or application.

Groupon has proven that consumers will pre-buy locally-relevant deal vouchers and share the news, while also proving that businesses do not mind paying a 50 percent margin for proven performance.

?[Groupon?s] model works very well for service-orientated businesses like spas, tours or museums, but not nearly as well for retailers,? said Wilson Kerr, business development director at Unbound Commerce, Boston.

?This gap in the Groupon model is where Facebook?s opportunity lies, as most businesses use Facebook but do not yet know how to monetize it by linking promotions to incremental commerce,? he said.

Since the 200 million most-active Facebook users access it via mobile, Mr. Kerr said that he expects Facebook to provide dashboard-delivered tools for retailers so that their followers can receive product-specific mobile deals based on real-time location and share these deals for a reward.

For retailers to take maximum advantage and convert these offers into sales, they will need a mobile commerce site.

?Having this allows them to easily roll out a social-commerce module in 2011, so Facebook Deals can be offered, converted and shared, all within Facebook,? Mr. Kerr said.

?Facebook might well stick with advertising, but could also take a page from Groupon and eBay and capture a percentage of these proven incremental transactions,? he said.

Final Take
Dan Butcher, associate editor, Mobile Marketer