Facebook went public yesterday, and there a couple of things that stood out for me. With a market capitalization of $104B, larger than both Amazon.com, and McDonalds, and 900 million users (a significant percentage of the population of the planet with access to a computer) the company has clearly been an incredible success. As an aside, from an investor’s perspective, the Facebook IPO demonstrates how important it is in today’s system to be an early institutional investor and an insider, and how little upside remains for the real investor (you and me) by the time the shares hit the public market. Facebook hit the retail market at $42 (the price paid by someone who placed a buy order with their retail broker), and closed the day at $38 (only with buying support from Facebook’s investment banks). For the typical Facebook user who bought the stock, Friday was a losing day.
Still, with a $104B market cap, Facebook makes a big statement on the value of free.
Which brings me to the theme of this posting. Free stuff. My view is that there are two different ways of making money by giving something away for free.
1. You can use free as a way of inspiring your customers to buy stuff from you.
2. You can give away services in order to show customers ads and to collect data on their activity that you sell the advertisers.
In the first model, your users and your customers. You treat your users with respect, and you have a clean business relationship. Your customers give you money in exchange for an item or a service that they value, and the company makes a profit by selling that item or services at a higher price than it costs to produce. This is the model that Forno Bravo and Apple follows. We make stuff (pizza ovens and outdoor fireplaces) and we sell it—hopefully at a profit. We give lots of valuable stuff away for free, but we only do that in an effort to make our customers happier so that they will buy more stuff.
The second model is more complicated. The main difference is that the company’s users are, in fact, not its customers. It’s customers, the people who generate its revenue, are its advertisers. This business model describes both Facebook and Google. This dynamic can create a great deal of conflict between the company and it users, where what is good for the user, for example privacy rights and content ownership rights, is bad for the company. And visa versa.
Today Facebook makes a profit of roughly $5 per user per year, virtually all through advertising. In order for the company to grow its revenue and profit in the coming years to meet Wall Street expectations and deliver on its huge stock valuation, they will need to grow that figure to $20 per user per year. Now that Facebook is public, it is going to be interesting to watch.
All of which brings me back to Forno Bravo and free. Is there a free lunch? At Forno Bravo, we believe that the answer is a big yes!
We offer a wide range of free services, including the Pompeii Oven eBook (who else would teach it customers how to not buy its products?), the Forno Bravo Forum, the wood-fired cooking eBook series, the Community Cookbook and more. And we will be announcing more free services and new free eCookbooks in the future—all with no strings attached. These services cost a good deal of money to create and maintain, but from a business perspective, these are good investments.
The important point is that Forno Bravo does not accept advertising and we will never sell or share your information with a third party. Never! We think that it should be easy, relaxing and fun to be a part of the Forno Bravo community.
This has been our strategy from day one, and it has been working really well; both for Forno Bravo and, we think, for our customers and our community. So we aren’t going to make any changes. Even though Facebook is now worth $104B.
I’m off to bake some bread and take lots of notes for our forthcoming wood-fired bread eBook.