Chris Salmon Technologies

In an almost comical tit-for-tat contest, Facebook leaks that it's going to challenge Gmail with a new email service, and then (surprise!) Google announces that they're going to put Facebook type features on their Gmail product, a new application called "Google Buzz"

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The amazing thing to me is, that these companies are fighting over products and services that charge no one for anything, and make no money!  

So when you win the race for free email and free social networking, do you actually win anything?

Perhaps.  You win something that can be sold to investors and Wall Street.  So your money is made from investors and stock, and not from the actual profits from the products and services - because there aren't any profits.  In the internet business, profits are always just a quarter or two away.  Then in two quarters, they're still a quarter or two away, and so on and on.  :-)

I'm not taking about Google's golden goose - ad placement in search results.  I'm talking about Facebook and Gmail and the fighting over a market that is not a market because no one gets charged for anything.   

Just think about it, have you ever bought a product or service from a Facebook ad?  Or an ad in your Gmail?  I know I haven't.  I've never even CLICKED on an ad in facebook or gmail, and I don't know anything else that has either.  I would be very interested to see the click-through and conversion rates for Facebook advertising.  I would be willing to bet it's microscopic!

I think it's likely that more people have bought stuff for their mafia wars character than have bought goods from facebook advertisers.

So where is the value proposition for these advertisers?  And once the advertisers figure this out, where is the revenue for a service like Facebook?  Gmail, of course, doesn't need anything but incremental revenue since it's funded by a cash flood from search advertising.  Facebook, thus far, is funded entirely by private investors and that includes companies like Microsoft.  Investors that have been willing, so far, to lose hundreds of millions of dollars on Facebook - but that cannot go on forever.  So what is the business model?   Collect "eyeballs" or traffic and then sell the customers to someone else?

There is a major problem with such a strategy.  Traffic is not at all locked into you, and when the Next Big Thing comes along, the next "cool" social app or what have you, there is nothing keeping your users from just pointing their browser to another URL.  There is NO customer loyalty in the internet business.

Just look at MySpace if you want an example.

I will do a full write up on Google Buzz in another article, but for right now I have to think it's very humorous, to see these companies fighting over who can give away more server space, bandwidth and support for free.  Very funny, indeed!