The social media giant will have to reinvent itself to monetise the mobile platform.
Facebook’s user base in India has grown from 8 million in 2010 to 50 million now and most of the access is happening through mobile phones. Although only 4 per cent of India’s population is on Facebook, it is still the 2nd largest country on the California-based social networking site.
India has a dynamic and profitable IT sector, a growing middle class, and an explosion of mobile users. Facebook is not the first company that would like to tap the growing Indian market, but it will make a strategic error to think that it can copy-paste its business model from the West.
“Of Facebook users in India, most are people under 30. This contrasts markedly to Western countries where middle aged people make a larger portion of users,” says a report from Strand Consult Research.
The report says that there two big concerns for Facebook in India. First, the advertisers are primarily from the West and target Western, not Indian, customers, and secondly, most Indians access Facebook with a mobile phone, something which Facebook has not been able to monetise fully.
But the social networking giant reckons that it has figured out the Indian market. “It is a very big and important market for Facebook and interestingly, the apt factor for the Indian market is that Facebook is a mobile product. We want to make sure that Facebook is available wherever our users want to access it, with partnerships for the mobile experience,” Dan Rose, Vice President, Partnerships and Platform Marketing, Facebook, told Weekend Life in a recent interview.
Like many internet companies, Facebook has a dream to win a large share of the $600 billion global advertising industry. But the problem for the social networking giant is that most of its revenue comes from advertisements on a PC environment.
"We have historically not shown ads to users accessing Facebook through mobile apps or our mobile website," the California based firm said in a filing for its initial public offering.
In the filing Facebook said that a big issue looking ahead is being able to get mobile revenue and that its revenue may be negatively affected unless and until it gets successful with monetisation strategies for mobile usage.
Strand Consult studied how mobile operators market on Facebook. With specific regard to India, the research firm discovered that Tata Docomo is the world’s most popular mobile operator brand on Facebook with over 8 million fans and growing by a staggering 16,000 people per day. “Indeed Tata Docomo is India’s most popular Facebook brand as measured by Likes. Most operators can’t get more than 2 per cent of their fans to like them. Tata Docomo has almost 10 per cent,” the report says.
But the problem is that Tata Docomo does not advertise, so it does not add revenue to Facebook. In practice, Tata Docomo’s posts will only be seen by a fraction of its 8 million fans, hence Tata Docomo’s wild proactivity to add new fans and build a critical mass that regularly reads and comments on its activities.
When asked if Facebook had any plans to monetise the platform which is being used by a lot of companies Dan Rose said, “We do not have plans on that today. We are very focused on the opportunity to monetise users on Facebook.com, increasingly focussing on mobile application, which is an area which we think is a very big opportunity today.”
Earlier this year Facebook launched the Reach Generator, a new premium advertising solution for large clients seeking to reach a higher percentage of fans via sponsored activity.
Reach Generator allows advertisers to pay Facebook on an ongoing basis, as opposed to a system based on the number of clicks.
“Facebook is hoping that companies will pay for the privilege to broadcast to its fans through the Reach Generator product, but whether companies will pay up for what they thought was a free and open social network, remains to be seen,” says Strand Consult
To be sure, Facebook has looked for other sources of revenue such as partnerships. It makes half a billion dollars from micro-transactions within social games (Zynga’s CityVille for example), but the gaming industry pales in comparison to advertising. Gaming is one thing that makes Facebook cool for users, and the company has been quick to make deals and acquisitions for cool user-driven technology such as the streaming music service Spotify and photo sharing service Instagram.
“Zynga really reinvented gaming by making it people first, then content. In doing that, they embodied that which we call social design. Social design is a principle that keeps people at the centre of product experience and contents second. The same principle can be and would be applied to other categories, for example, music,” says Rose.
When music portal Saavn.com integrated with Facebook, they had 35,000 active users. Within four weeks, they grew to 785,000 active users. They have generated over 750 million Facebook impressions.
Given India’s near 1 billion mobile users, it is possible that the next wave of innovation would come not from Silicon Valley, but from India. Considering that India has already upset the world through outsourcing, perhaps it is ripe now to bring a disruption through mobile. For Facebook to make money in India it needs to reinvent itself.