The biggest news story of yesterday was unequivocally the announcement that Facebook was buying FriendFeed. This is perhaps Facebook’s biggest move yet into Twitter territory, a business which Facebook really wants to be in. This became clear earlier this year, when Facebook added its very Twitter-like homepage. It’s also clear to anyone who has used FriendFeed that it’s way more similar to Twitter than anything on Facebook. So with its recent acquisition, the question everyone should be asking is this: does Facebook have an idea for how to make money in Twitter’s business?
It seems like Facebook must have what they believe is an actual business model for the microblogging business. According to a Wall Street Journal estimate, Facebook paid close to $50 million for FriendFeed. Even though Facebook is valued at nearly $10 billion these days, analysts believe that the company revenue back in 2008 was closer to $300 million, meaning that the FriendFeed purchase was a pretty significant chunk of the money Facebook brought in for the year.
From a business perspective, it makes a whole lot of sense to plan how your investment will make you a return than it does to plunk down $50 million simply to own a bigger part of a market which currently isn’t actually making money. Sure, Twitter is valued at close to $250 million, but this is solely on the strength of Twitter’s userbase and popularity. Twitter has yet to actually bring in any money from sources other then VC funding.
Still, there is a possibility that the brains at Facebook HQ have no idea as to how they’re going to turn a profit from the FriendFeed acquisition. The goal of the investment might not be to monetize microblogging, but instead to own a share of the platform. Year on year, Twitter is considered to be worth more and more money, and that’s because people are realizing that the business Twitter is in is worth a lot of money. When Twitter went down last Thursday, it was the biggest story that any news outlet could get its hands on, which should be an indication of just how important microblogging has become. There’s a chance that Facebook just wants to be in a business that’s constantly evaluated as being worth more and more money.
Whether or not Facebook will be able to do anything with FriendFeed is yet to be seen. More than likely, Facebook wants a way to integrate FriendFeed’s status update technology into the main Facebook status update interface. Facebook’s going to hold off on doing this until the company has a slick way to integrate the FriendFeed technology, but I would assume that for $50 million, Facebook has something clever in the works.
