Facebook's Agenda

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Facebook (NASDAQ: FB) has promised that it won't ever become a pay service and more than likely Mark Zuckerberg will keep his word. That doesn't mean the company won't come up with new ways to bolster its revenue stream, however. In an attempt to do just that, Facebook has begun attaching fees to users wishing to send inbox messages to individuals who are not on their friend list, according to a recent CNBC report.

The article suggests, for instance, that to send an Inbox message to Zuckerberg himself, you must either pay a $100 fee or settle for having the message being directed into an inbox other than the main folder. I tested the process but personally was not invited to pay fees of any sort in exchange for preferential treatment of my message. According to a Wall Street Journal update, the message-fee is in beta stage and is designed to mitigate spam.

It's an idea that could pay nice dividends for Facebook and raises the stakes for users who depend on the social networking website for communication. Details remain sketchy at best and it's unclear what the potential market for social networking messaging could be. Nonetheless, the publicly-traded Facebook appears to be heading in the right direction in its push to diversify revenue streams.

Another area where Facebook has set its sights is more quantifiable. Facebook's plans to enter the Internet-search space this year would usher the company into a market that is projected to be worth $50 billion in 2013, according to CNBC. That is the type of revenue diversification that -- as Alpha One Capital Partners' Dan Niles' points out on CNBC -- companies like Apple have profited from. It's a far cry from Zuckerberg's early mantra, which was that Facebook:

"...didn't build services to make money but instead made money to develop better services." (Mark Zuckerberg, S-1 filing.)

The former approach may work for Facebook as a privately held concern, but not as a publicly traded stock. Now the company appears to be on the path to further monetization of its offerings. Meanwhile, it's a free lesson for companies like Twitter that may be planning an IPO in the next year or two.

As Niles pointed out, for instance, Facebook is figuring out how to monetize its various services, which is something that until recently has been lacking. The social-networking giant could earn as much as $1.5-2 billion this year from mobile application sales alone. In its 3Q, mobile ads represented 14% of Facebook's overall revenues, the company stated in its earnings report.

The 3Q is also when Facebook teamed up with partners -- including specialty retailers Gap and Brookstone -- to support its Facebook Gifts service, which represents yet another revenue stream for the social networking giant. While the stock is still trading below its $38 new-issue price, it has attained multi-month highs in recent days and seems to only be gaining momentum.

<img src="/media/images/user_13739/mf-fb_large.png" />

Searching for Profits

If Facebook makes good on the expectation to enter the Internet search space, it's entering a market dominated by Internet patriarchs Yahoo (NASDAQ: YHOO) and Google (NASDAQ: GOOG) Yahoo, for one, seems to have hit a stride in recent months with shares of the company up 22% since July. Indeed, July was when Yahoo CEO Marissa Mayer decamped from Google where she once led the search division to take the helm at Yahoo. Before Mayer's appointment, uncertainty plagued Yahoo as it changed chief executives almost yearly.

Yahoo isn't out of the woods yet, however. The company's mail and search traffic have been on the decline. Internet search traffic declined by approximately 25% in both November and December of last year, according to All Things Digital

Meanwhile, Google continues to reinvent itself and add to its many revenue streams. Most recently, the Internet behemoth, with a market cap of $243 billion, has its sights set on e-commerce. Google introduced Zavers, which is a service that matches consumers with online coupons that are most relevant to them, according to ZD Net. Zavers is sure to give online coupon pioneer Groupon a run for its money.

Yahoo has a trailing price-to-earnings ratio of just under six, compared with a much higher valuation of approximately 23 at rival Google.

<img src="/media/images/user_13739/mf-yhoo-goog_large.png" />

An expansion into the Internet search market would certainly create new opportunities for Facebook that could translate to higher advertising revenues and profits. It would also open up a host of new challenges but Facebook has about one-billion loyal fans that should make the growing pains less obvious.


GerelynT has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus