Facebook’s Revenue Trajectory

Yesterday, TBI Research released a research note projecting that Facebook will top $1 billion in revenue in 2010. This follows an earlier estimate of $710 million from NYPPEX, a private equity advisory firm.

In the note (covered by The Business Insider blogger Nicholas Carlson), TBI Research analyst Rory Maher said that the revenue estimate “demonstrates the strong growth potential [for] social media and local online advertising.” TBI Research is a part of The Business Insider.

TBI believes that Facebook’s success is coming from branded display advertising with premium CPMs; a strong self-serve ad program offering deep targeting; and attractive viral advertising programs. In addition, Facebook generates revenue through search and the sale of virtual gifts.

Of course, Facebook’s enormous growth over the past several months also has something to do with that. It now has more than 350 million users worldwide.

The local angle is of critical importance. Facebook now has enough mass that it can be an effective targeting tool for small businesses and local businesses. Based on personal experience, the ads can be quite sophisticated. I regularly see ads that know I have kids and that I live in Seattle. Today I saw an ad that knew that I am a fan of the Facebook page for “The Amazing Race.” I don’t find these ads creepy or invasive at all.

One thing the TBI Research note doesn’t really cover is mobile. So far mobile hasn’t been a factor in Facebook’s revenue stream, but many of its members access Facebook from their mobile phone. I expect Facebook will sell mobile advertising in the near future. Also still on the horizon are potential revenue streams from ecommerce, virtual currency and more.

Facebook has already been on a strong revenue trajectory in the second half of 2009. In May, I had projected that marketers would spend $300 million worldwide to advertise on Facebook in 2009. Clearly Facebook has blown well past that figure. How high will it go this year and next year? I’ll have more details soon, when my next social network ad spending report comes out.

One thing is certain: Based on my recent discussions with agency executives and other industry insiders, Facebook is now the premier destination for marketers who are using social media.

As companies build out their social media strategy for 2010 and beyond, many millions of dollars will be spent to develop and manage Facebook fan pages. The question will be just how much marketers will spend to buy paid advertising on the site. Facebook will need to keep pumping out the ad innovations, and it will need to give marketers proof that the advertising works.