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The Money Man Behind Rick Santorum: Who Is Foster S. Friess?Imagine being an executive at The New York Times Company (NYSE: NYT) waking up to read in one of your own papers that another company will offer free online classifieds. This time its is Facebook, with 22 million registered users, making the offer.
While the move may trouble News Corp's (NYSE: NWS) MySpace and online classified operations like Monster (NASDAQ: MNST), the real victims of any success by the Facebook venture will be the newspaper companies. They are already watching their classified ads move to online real estate, job, and car sites. The newspapers own some of these, but can't give the advertising away. It would undercut their entire business model of migrating readers and paid advertising to internet sites.
It is also difficult to see how the new product works for Facebook. While it may bring in new users and keep current users glued to their screens while they look for jobs, free is free. If there is a knock against social network sites it is that they cannot make money on their huge traffic bases.
Facebook may do some damage to the newspaper industry, but it is also giving itself a paper cut.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
5-13-2007 @ 8:46AM
Chris said...
While I haven't seen Facebook's site, I would offer up that as with most things like this, the real revenue doesn't stem from private individual classified ads. The main revenue source is in adertising dollars. The more people that you can get to gravititate to your site, the more clout you have in selling banner ads and setting higher prices for those banner ads. With the cost of hosting services being a very economical solution, it doesn't take many banner ads to move the site into the black.
I would also counter that newspapers' main sources of revenue were never found with private individual classified ads. Newspapers mainly rely on business advertising dollars along with subscriptions.
Newspapers will either have to adapt their business model just like everyone else or get left behind due to increasing internet usage.
The real challenge for newspapers and magazines won't be found with the competition of internet sites offering up free advertising opportunities to the private indidivual or other similar free services. It will be found in competing with the fact that the internet offers lower operating costs overall. No paper costs, no ink costs, the utilization of revolving banner ads that makes use of the same page space, lower staff requirements, no distribution costs (postage or route carriers), etc.
On the other hand, newspapers have access to the same technology that Facebook is using and thay have access to the same low operating costs for an interenet line of business. The only difference is that they still think they can use the same business model on the interent as they do with their hardcopy product and they're finding that not all consumers are as stupid as they thought. Comparison shopping is as easy as a few clicks of the mouse and free services are cropping up everywhere. If the newspaper industry refuses to adopt a business model to handle their online operations, then they deserve to be left in the dust.