2021-01-15

Are most Facebook users cost centers, rather than profit centers?

Johannes Ernst

https://reb00ted.org/tech/20210115-are-most-facebook-users-cost-centers/

According to CNBC, Facebook made $7.89 in revenue per average global user in the 3rd quarter last year (with a high of $39.63 in the US and Canada, and a low of $2.22 outside US, Canada, Europe and Asia-Pacific).

According to Yahoo! Finance and my calculation, if its expenses in the same quarter were $13.4 billion, expense per user was $13.4 / $21.5 * $7.89 = $4.92 on average (proportionally allocated given expense / revenue ratio).

Revenue per user is obviously quite different in different parts of the world, but what about costs? It seems to me that on a per-user-basis, selling and serving all those ads in the US and Canada that led to so much revenue per user is probably more expensive, compared to some places that have less commerce. But as dramatically different as $39.63 and $2.22 on the revenue side? I don’t think so. Not even close.

In other words, users in the rest of the world at $2.22 of revenue per user are almost certainly not profitable. Even if expenses there were only half of average, it would still not be enough.

Of course these numbers are averages across the regions, and chances are that the differences between users within one region are also quite striking. I don’t have numbers on those. But I would bet that some users in the US and Canada also bring in less revenue than the $4.92 in average cost per user.

Who would those unprofitable users be in the US, say? Well, those demographics and those neighborhoods in the social graph in which advertisers see little opportunities to make a sale, because, for example, everybody is unemployed and angry.

(So if, for example, a certain presidential campaign came by and wanted to specifically target this demographic with political ads … I for one can vividly imagine the leap of joy of some Facebook business guy who finally saw how to get promoted: “I turned a million users from being a cost center to being a profit center”. And democracy be damned. Of course, I’m speculating here, but directionally I don’t think I’m wrong.)

Which suggests another strategy to unseat Facebook as the dominant social network: focus on picking off the users that generate the most revenue for Facebook, as they subsidize the rest. If that relatively small subset of users jumped ship, the rest of the business would become unprofitable.

(I jotting this down because I hadn’t seen anybody suggest this strategy. We do need to find ways of ending surveillance capitalism after all.)