An old saying goes, ‘Too much of a good thing is bad’. This saying seems to apply quite well to Facebook in recent times.
The site has been growing worldwide at a very fast rate, but contrary to expectations, that is probably the main reason for their dwindling cash reserves.
Over the last year or so Facebook had raised $240 million from Microsoft and $235 million in debt and equity, which seemed more than enough to cover the cost of growing for at least the next couple of years.
However, as of now, the situation is quite the opposite. TechCrunch reports that the costs of running the site are growing in proportion to its growing popularity. The additional electricity, bandwidth, servers and storage systems required all cost a lot of money in addition to rent for new offices, salaries for staff and other operational costs.
Add to this the present financial downturn, which some predict will get worse, and the picture looks pretty grim for Facebook.
Over the last year, Facebook’s unique monthly visitors have grown by 118% to 161 million, and page views by 74% to 61 billion. One would assume that the added costs would be more than adequately compensated by the revenue generated from so many visitors – through advertising, which should increase with the popularity of the site.
Growth has been far greater in the rest of the world, than in the U.S.A. where MySpace is still the top social network. Today, just about 25% of Facebook users are from the U.S. Some believe that it is not as easy to monetise international audiences as most of them generate a minimal amount of revenue and overheads such as bandwidth and storage cost in these countries.
Google, however has succeeded wildly in the same markets, owing largely to their exceptional product and robust advertising platform that works with it.
Facebook has a very good product too. Must the fault, therefore, lie in their not-quite-stellar advertising platform?