Facebook and Twitter Are Determined Not to Make Money From Advertisers

(MoneyWatch)  UPDATE: The TweetMoney blog just announced the results of its "Design a Revenue Model for Twitter" contest, and it was won by Publicis agency Denuo. See here. Facebook and Twitter -- both hailed by marketers as the future of reaching consumers -- seem to be determined to doom their financial futures by refusing to link their massive traffic flows to advertising and advertisers. Ironically, that's exactly the same mistake newspaper publishers made when they gave away their news for free.

It raises the prospect of whether Facebook and Twitter might go the same way as Friendster, Tribester and TheGlobe (and post-web newspapers) -- non-revenue-based fads that were hailed as the next big medium ... but turned out not to be.

A recent Ad Age column points out that advertisers are -- no surprise -- all over Facebook, but that Facebook manages to get exactly $0 from their efforts:

... marketers can leverage the platform without actually paying for it. Take, for example, Burger King's "Whopper Sacrifice" application, which allowed users to un-friend 10 friends for a free Whopper. The application resulted in plenty of press and more than 230,000 dumped friends, but Facebook earned no revenue from it. Ultimately, Facebook disabled the notification feature, which it deemed too intrusive, and the application was shut down.

The critique bears a striking resemblance to that of newspapers offered by publishing magnate Steve Brill*:

"If I were to give the same speech today," he says, "I would say the press has to stop committing suicide by giving journalism away for free. Start charging for it, start believing in your product."

Burger King is not the only advertiser using these sites as free advertising. (Disclosure: BNET has several Twitter feeds -- we direct readers to our site, and then sell those clicks to advertisers. Bingo!)

SaySo Mobile recently exploited several free Twitter feeds to gather new customers. Twitter wasn't involved in the transactions, even though it owned the medium which generated the transactions in the first place! More recently, Dell used Twitter for a discount promotion.

By "charging" for their media, Facebook and Twitter have options. They can charge users, advertisers, or both. So far none of those things have happened.

Here's four ways Facebook and Twitter can start making money with almost zero effort:

• Charge users for permission to use certain widgets developed by third parties
• Charge subscribers for advanced features, such as customization, heavy usage
• Charge commercial organizations for using the service
• Adopt banner ads -- yes, they suck, but plenty of sites make money serving them. Not to do so would be reverse snobbery.

In the meantime, both sites will remain the subject of valuations based on the fantasies of gullible venture funders. *Disclosure: The author was once employed by this cigar-chomping, shouty media owner.