I think this issue with mobile users (harder to monetize) ties into the big problem for Facebook over the next 5-10 years.

To turn into a profitable company, valued at (say) a hundred billion dollars, they need to start making more money.

Now, there are two main ways they can do this.

1.) Increase number of users.

2.) Increase average revenue per user

They can attempt to increase their number of users by focussing on countries with low penetration. The problem with this, is that these users are harder to make money off (on average poorer, advertisers less interested in their eyeballs). In fact the article claims that these users are loss-making for Facebook at this time. There is (I guess) little scope for absolute user growth in the US, UK and European markets, in fact, its been suggested that user numbers are tailing off here.

Revenue per user: Given the constraints on users mentioned in the last paragraph it becomes really hard to increase your revenue per user. Especially if they're shifting to mobile which is harder to monetize. Any new users are probably going to harm this metric even more (as they'll tend to be poorer than existing users)

So, if Facebook want to say double their revenues how are they going to go about it?

The shift to mobile has potential to be a major issue for any web service that currently relies on display advertising in the browser. Sooner or later these companies are going to need to find a way to monetize mobile app users.

Third party mobile apps will also become an issue as consumers shift to mobile. For example Facebook, Twitter and Reddit all have very popular third party applications that bring in zero revenue for them. This is fine when the name of the game is all about increasing the number of users, but eventually they are going to need to increase the revenue per user.

No, but it explains how the bubble is going to deflate. Within two years, Facebook will be MySpace. We just haven't discovered what the replacement will be yet.

If it was that, it's actaully a smart move. FB didn't pay in cash so they tied the value of the two companies together. The deal has the potential to remedy at least some of FBs mobile user issues. And it created a lot of media coverage, always good before an IPO.

But one thing I never really got is how you can actually make money in the social space.... But that has nothing to do with the Instagramm / FB deal.

> Facebook, Inc. just filed a new amendment to its IPO prospectus (S-1) tonight which offers new transparency into its weak Q1 results

Amazing what an IPO can do for transparency. This is the sort of thing you'd never find out about a limited risk small company.

As a side note: the Facebook iPad and iPhone apps are really badly designed. It's very hard to use them - comment panes are small, their side menu systems not that good, features are missing from groups (like docs) and if you post a Facebook URL in a group when you click on it it takes you into Safari to view the link... You have to log in to Facebook while logged into Facebook.

My point being - I'm not sure they get mobile apps. Which seems odd to me!

I would be surprised if Facebook is not working on their own mobile OS. All those amazing designers they acquihired can't be working on plain-looking webview apps.

This is why the pervasive ideal company line in Silicon Valley is wrong. The "Lots of Users + ? = $$$". Can you imagine the same being applied to anything else?

"Yes, today we'll be pitching a restaurant. We give away food for free! In a couple months/years when we have millions of people coming in for free food, we'll figure out some way to make money off of them. Probably advertising. Investment please!"

Just charge for the app already. Facebook has become so deeply integrated into most peoples lives they aren't going to care about sending $0.99 their way. Hell charge that annually and no one would care

If you watch the roadshow video, Zuck even makes a point that they are "real soon now" making these advertising platform mobile friendly. Now it seems obvious why they had to emphasise this.

I am 100% sure they will produce a phone and it will be a huge hit and it will be so integrated with facebook that it will make this all moot.

I have read before that FB does not make any meaningful revenue from its mobile users. But, Instagram does not generate any revenue either.