Facebook: wake up, there is no free lunch

Sam Varghese
Wednesday, 18 February 2009 07:44

IT Industry - Market

In the brouhaha which has broken out after Facebook changed its terms of use to bring in a clause whereby it would own or at least share ownership of content created within its portals, a couple of questions have eluded most people.
First, why didn't anyone see it coming? Here's a so-called social networking site, which attracts a large number of people (who apparently have nothing better to do with their time), and has no business model, no way of balancing the books. It's aimed at making a packet if it can; that's what all these venture are all about. (Update, Feb 19: Facebook has been forced to eat humble pie and back down.)

There are bandwidth costs to be paid, workers who don't live on love and fresh air, and a bunch of venture capitalists who generally want to see their money double or treble within a certain timeframe.

Whenever Microsoft puts money into a new venture, people tend to see it as a hint that there may be a real big future for said venture.

But the fact that Microsoft has invested some money in Facebook is inconsequential; the software behemoth is paranoid about any new venture that seems to be taking off and hedges its bets. It missed the advent of the internet and doesn't want to be caught napping again. Further, the amount it has thrown at Facebook is pocket change.

And even though the amount is small, Microsoft has been careful to buy preferred stock that carries special rights - in the event that Facebook sinks, then Microsoft would be paid before other common shareholders.

Secondly, those who do create a Facebook page may believe in those warm, fuzzy feelings that tend to wash across people who spend their time in such acts.

But the cold, hard fact is that the owner, Mark Zuckerberg, is running a business. He's got investments from Accel Partners, Greylock Partners and Hong Kong billionaire Li Ka-shing apart from Microsoft. Having collected those millions, Zuckerberg has to find some kind of business model that works.

Else, the investors may look to recoup their costs and move on.

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