Chris Dixon on the Facebook Business Model

Now that final's season is over - I'm trying to dive back into daily blogging.

Chris Dixon has a great post on Facebook's business IPO that I think complements some points I was making in a previous post (albeit much more clearly):

The key question when trying to value Facebook’s stock is: can they find another business model that generates significantly more revenue per user without hurting the user experience? (And can they do that in an increasingly mobile world where display ads have been even less effective.) 

Here is the link.

Chris is certainly right that Facebook has a lot of resources to use if it's going to alter its business model. When Google+ was first coming out, I remember some people talking about the prospects of inserting a search engine into Facebook (probably using Bing). If Facebook is going to stick with display ads, they should shift their "social lock-in" strategy to include consumer habits - which involves expanding Facebook beyond purely social interactions.

Thoughts on Facebook (pre-IPO)

This could be expanded. There's something to be said about how social media websites function as firms and the nature of their outputs.

Some general observations: 

• Facebook's "product" (access to the social network) is only as valuable as the number of users. And each user has his or her own unique social group. So in a bizarre way, the product is fine tuned to very specific interconnected sub-markets
  
  
• There is a far amount written about Facebook's app economy. Some is here and here. Facebook is spending less on R&D, relying on outside developers. In the second link, it says Facebook is mimicking Apple's R&D model. The payoffs may not be as valuable for a company that is not producing replicable goods.
  
  
• The new products that analysts keep talking about never actually leave the website. All new innovations (thus far) have remained on the profiles. Is there a diminishing marginal return for this pattern?
  

Overall it will be an interesting year for Facebook. There will be plenty of IPO analysis to go around, and I'm sure many anxious investors will it's much more valuable than it actually is. 

Here is the full S-1 S.E.C. registration form.