Monday Grok: Facebook’s speed bumps on the way to $10 billion

And don't blame Google because Evil R Us

As we close in on Facebook's IPO, the numbers are starting to come through thick and fast. This morning for instance, in Business Insider, TBG digital CEO, Simon Mansell, had a stab at calculating Facebook's maximum annual advertising revenues based on its current growth trajectory and inventory limits.

Mansell has Facebook capping out at $10 billion a year , up from its current one billion a quarter. That looks like there's a fair bit of growth to come, but there's a problem. Its one billion a quarter of current revenue is generated in the world of world things, whereas Mansell's $10 billion is based on a theoretical limit assuming nothing gets worse (or even better).

To get to $10 billion, Mansell assumes 100 per cent of advertising inventory is sold out. But that could never happen. Ever.

Also, he assumes the current ad yields (the amount of money Facebook gets per unit of advertising) remains the same. As Grok has written elsewhere extensively in the past, in a world of infinite advertising inventory and finite marketing budgets, yields have only one way to go long term. And it's not up. (Search advertising yields are different btw as the scarcity is in the term, not of the delivery.)

But to top this half empty glass back up to the brim, remember that Facebook can always increase its advertising inventory per page within the limits of customer tolerance. And then there's the big one — mobility. This is where Facebook's real growth is happening and right now it generates barely a cracker for the social networking giant. As audiences migrate to mobile, advertising revenue should logically follow.

Of course, a lot of newspaper publishers went broke applying that same logic to the transition from print to digital. Also, while it's not a zero sum game, the explosion in mobility looks like a mass migration, not a population explosion. In other words, as mobile grows the desktop will shrink. If you want a real-life example of that, check out what's been happening over at Japan's Mixi in recent times.

Hold on, haven't we forgotten about Facebook Commerce? Yes, but only because it's just so forgettable, as this <i>Bloomberg</i> report suggests.

Finally, it would have to be a very brave oracle to predict that Facebook represents the end of history and that something bigger and better won't come along in future. There's always another Netscape, another AltaVista, another Amazon, another Yahoo, another eBay, another Google, another Twitter and yes, perhaps another Facebook just around the corner. All of which sounds very gloomy, but maybe that's just Monday morning talking.

Set against all the logic and evidence of the previous 400 words, here's what Grok really thinks is going to happen:

$10 billion is soft. Facebook will smash through that speed barrier in the next few years and not ever look back. Why the optimism? Nothing is more unsatisfying than that gut feeling, I'm afraid. That's because, after all, we are still dealing with a precocious teenager here. Just wait until it really gets its mojo on.

No one to blame but you and me

Over at PandoDaily (Grok's newest daily reading habit), there's an interesting little think piece by Trevor Gilbert reflecting on the proliferation of Do Be Evil stories in recent weeks, featuring Google, Apple, Path and others. The author noted, “The common denominator is that all of the above products are cheaper, better or free as a result of shortcuts. Shortcuts that were implemented because of demands from users, customers and consumers. That means that in the end, one person is at fault for these ‘scandals’: You (and me).”

It's a good little brain kicker for the start of the working week, and you can read it here.

Andrew Birmingham is the CEO of Silicon Gully Investments

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