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Business Models on Facebook

By Jeremy Liew, partner at Lightspeed Venture Partners

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Presented at Stanford Facebook Class
Nov 15th, 2007

Business Models on Facebook

  1. Business models on Facebook Stanford Facebook Class Nov 15 th , 2007 Jeremy Liew Partner, Lightspeed Venture Partners [email_address]
  2. Its cheaper than ever to start an internet or app company… $ ‘000s Source: Presentation
  3. … and cheaper than ever to run an internet company SAMPLE EXPENSE BUDGET <ul><li>Rent, Legal, etc </li></ul>$0.20m Other Costs $1.22m TOTAL <ul><li>$15k/month </li></ul>$0.18m Infrastructure Costs <ul><li>7 employees </li></ul><ul><li>$120k fully loaded </li></ul>$0.84m Staff Costs Assumptions Annual Fixed Costs
  4. As a result, getting to breakeven isn’t too hard… * Assumes ad sales by an ad network or ad rep firm Illustrative 0% - EBITDA 7% 200 Other Costs 7% 180 Infrastructure Costs 36% 840 Staff Costs 0% - Marketing 50%* 1,220 Cost of Goods 100% 2,440 Revenue % $ '000s Media
  5. Advertising RPMs* depend on your ability to deliver a targeted audience $10-40 $1-5 $0.50 - 2 ** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from advertising and half from ticketing” Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis * RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen 600M 126B 524B Annual US PVs $41.67 50M $25M** Fandango $1.03 12B $150M** Facebook $0.52 44B $271M Myspace RPM March US PVs 2007 Revenue Example
  6. Pageview targets get progressively harder as revenue aspirations increase… RPM Annual Revenue Goal Monthly Pageviews needed to hit Revenue Goal 208m 21m 2m $10 833m 83m 8m $2.50 4,167m 417m 42m $0.50 $25m $2.5m $250k
  7. …requiring stretch targets for installs RPM Annual Revenue Goal Total app installs needed to hit revenue goal* * Assumes 5% active per day, 3 pageviews per visit 21m installs VS. 46m 5m 0.5m $10 185m 19m 2m $2.50 926m 93m 9m $0.50 $25m $2.5m $250k
  8. Implication for ad models – get big or get expensive <ul><li>Get big </li></ul><ul><ul><li>Multiple apps </li></ul></ul><ul><ul><li>Multuple platforms </li></ul></ul><ul><li>Get expensive (High CPMs) </li></ul><ul><ul><li>Endemic categories (Movies, Travel, Health, Shopping etc) </li></ul></ul><ul><ul><li>Standard ad units </li></ul></ul><ul><ul><li>Targeting </li></ul></ul>
  9. What about digital goods? Purchase rate Annual Revenue Goal Total installs needed to hit Revenue Goal * Assumes 5% active per day, $1 per item 28m 3m 0.3m 5% 139m 14m 1m 1% 1,389m 139m 14m 0.1% $25m $2.5m $250k