Masterlink Interactive Blog

A Cash-Flow Positive Facebook Helps the Industry

Facebook is making money. It shouldn’t be shocking, we know.

But let’s be honest—social media is an industry that’s been more often rich in potential than profits. And no social media platform embodies this gap more than Facebook.

Despite the site’s massive growth, Mark Zuckerberg’s enterprise—launched in a Harvard dorm room five years ago—has actually struggled to break even. 300 million users (traffic has tripled from just 100 million a year ago) means a massive advertising base, but it also means prohibitive bandwidth and operations costs (a growing percentage of users come from developing countries, where advertisers are reluctant to invest).

But for the first time since the site hit the mainstream, enough cash is flowing in for the ballooning site to cover its operating expenses and continue to expand. It’s not quite profit, and major questions remain, but it could be a landmark step in the right direction.

So how should we—the social media community—read this latest news?

Facebook as the “Bellwether”

A profitable Facebook is good for the social media industry, primarily because an unprofitable Facebook could be devastating.

Look at it this way: While Facebook’s success would signify a well-run, innovative company capitalizing on an unprecedented user-base, Facebook’s failure would say more about systemic, industry-wide limitations. If a massive, efficient, innovative, pioneering company can’t turn profits, how are smaller ventures supposed to earn investor confidence?

In other words, with 300 million users, Facebook profits seem to some almost inevitable. But if even Facebook falls short on the bottom line, investors could see the basic premise of social media success—profits via advertising embedded in free content—as too inherently flawed to overcome any significant amount of operating costs.

It all comes down to targeted advertising, and the fact that Facebook has appeared to finally figure it out bodes well for the rest of the industry.

Investment Capital is Coming

Improved confidence should only signal an easing in venture capital, and the hard numbers appear to be particularly welcoming: $240 million from Microsoft in 2007. $200 million from Russian investment group Digital Sky last May.

Overall, since its 2004 launch, the site has raised nearly $600 million, and — with expected revenues of $500 million this year — appears to be in much better shape for a potential IPO in 2010.

“This is important to us because it sets Facebook up to be a strong independent service for the long term,” said Zuckerberg on his blog.

Belief in the system — and belief that the potential can, in fact, turn into real profits — boosts social media and internet marketing ventures industry-wide. Bellwether Facebook is again leading the way.

Let’s say your suffer a blowout near Texarkana and need to find a tire store. A search engine could get you the urgent information you need…or it might just lead you to a website run by Texas senator and 2010 gubernatorial candidate Kay Bailey Hutchison.

Search engine optimization went mainstream in Texas political discussion three weeks ago, when the Austin American-Statesman reported that the www.standbykay.com site run by the Hutchison campaign had more than 2,200 such computer-generated “Hidden Phrases” written into its source code, with the goal of boosting search results rankings for each of the dubious search terms.

This meant that both the expected (”Texas Republicans”), and the bizarre, but harmless (”Cooper Tire Texarkana,” “What is a keg?” and “Why do we have knees?”) would help you stand with the senator. Political comedian Bill Maher made his way in via four different spellings of his name. Ron Paul earned more than 120 mentions, including an eyebrow-raising “Bad Things about Ron Paul.” Incumbent governor Rick Perry was represented 148 times including, most scandalously, the search term “Rick Perry Gay.”

The Hutchison campaign denied knowledge and eventually severed ties with the consulting firm credited with what we in the interactive marketing community call “black hat” SEO strategy-gone-wrong. But the damage was done.

The Hutchison campaign took an egg to the face. Modern politics entered another new bizarro realm of controversy. And we learned a hefty reminder about the risk of black hat SEO techniques.

Why Black Hat?

The idea behind black hat is simple: boost search engine rankings by means that are frowned upon by the larger SEO community. In practice, this usually means techniques like:

• Invisible text: Hiding irrelevant keywords by, say, writing them in white text on white backgrounds.
• Stuffing keywords: Skipping any effort to seamlessly fit the keywords into the text, and instead inserting long lists of keywords without any relevant content.
• Doorway pages: Building fake pages filled with keywords that the site visitor never sees (but which search spiders do).

The Hutchison site stuffed keywords under an invisible CSS <div> tag “display: none.”

At Masterlink, of course, we do not condone the use of black hat SEO techniques for three main reasons:

1. It’s ethically questionable, and creates a user-unfriendly search environment.

Search engines are powering the information age, and we all depend on their accuracy. Imagine a search world where black hat techniques were allowed to spread unfettered. You’d search for information about local schools, and get listings for sites selling knockoff Gucci bags from Bangalore. You’d search for a tire store in an emergency, and learn about, well, a gubernatorial challenger.

This just isn’t the game we want to play. And it too often comes back to bite the website that tries it.

2. At best, it’s a risky strategy.

Even beyond the press and blogosphere backlash, Google got wind of the senator’s SEO shenanigans. The omnipotent engine eventually dropped the site from its search results.

Black hat often achieves its desired results, but only temporarily. It is in the search engines’ best interests to keep optimization a fair game, and sites unfairly gaining an advantage almost always eventually get caught.

3. Above all, it’s unnecessary.

MasterLink’s internet marketing methods have provided proven, safe, efficient results, without using such misleading techniques.