A Hole in the Facebook (FB) Business Model?

By May 23, 2012, 12:58 PM Author's Blog  

Facebook (FB) is getting a LOT of attention. As well it should.

An IPO that is down 17% in the first three days of trading will generate a lot of focus.

Everybody loves Facebook. Reconnecting with old friends. Making new friends. The world has gotten very small and very fast with new modern technologies. Which of these capabilities has been more impactful than Facebook? All this said, questions abound about Facebook, including:

  1. Is a great product by necessity a great business?
  2. How and when will Facebook develop a mobile application?
  3. How will it monetize its traffic? Will it be able to charge for certain services? Will it be able to sell a sufficient number of ads to justify a valuation of anywhere close to $100 billion?

All great questions, but they do not hit on a question posed to me today for which I had no answer.

What if Facebook users, broadly speaking, were to block the ads posted on Facebook? I will admit I am a technical neophyte. I am lucky to navigate the basic highways and byways of sites like Facebook and many more. Block ads? I would not know where to start. Who does? Plenty of people and especially kids. A friend of mine shared the following with me earlier today:

“why is no one talking about what happens when everyone realizes there are ad blockers on Safari, Chrome etc that are free and take 1 minute to install….what happens to sites like Facebook and all ad supported sites when everyone starts blocking their ads?  my fifteen year old son and all of his friends block ads … what happens when we all do?

In speaking with somebody who studied the Facebook marketing materials extensively, he informed me that this topic was not broached at all.

I wonder what sort of block rate Facebook has built into its models and projections?

Will we look back and say Mark Zuckerberg just pulled the greatest coup of all time, or will Facebook generate cash flow which supports anything close to a $100 billion valuation?

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