Saturday, June 13, 2009

The New York Times: In Developing Countries, Web Grows Without Profit (II)

The Facebook social network is also considering lowering the quality of videos and photographs delivered to some regions in an effort to reduce expenses.

“We can decide, either on a country by country or user by user basis, to engineer the quality of the service for that cohort of users,” said Jonathan Heiliger, the executive who oversees Facebook’s computing infrastructure.

Facebook is in a particularly difficult predicament. Seventy percent of its 200 million members live outside the United States, many in regions that do not contribute much to Facebook’s bottom line. At the same time, the company faces the expensive prospect of storing 850 million photos and eight million videos uploaded to the site each month.

Facebook, which says it favors membership growth over profitability for now, is trying to increase revenue overseas by hiring advertising sales staff in countries like Britain, Australia and France.

In other parts of the world, Microsoft serves ads on the site and Facebook offers self-service tools to advertisers. But those ads are far less lucrative than the ones Facebook itself sells in the United States and Western Europe.

As a result, speculation has swirled about Facebook’s finances. Industry analysts wonder aloud how fast the company is losing money and whether it needs to solicit another round of investment.

Facebook said last month that it was on track to become profitable next year. But as it did, Gideon Yu, Facebook’s experienced chief financial officer, left the company. Three people familiar with the internal maneuverings at Facebook said Mr. Yu objected to such a rosy projection as the company was struggling to finance its expensive global growth.

Web entrepreneurs like Mr. Shapiro of Veoh, still struggling with his decision to restrict his site from much of the world, might have to find a way to soothe their battered consciences.

“The part of me that wants to change the world says, ‘This is unfair, it shouldn’t be like this,’ ” Mr. Shapiro said. “On the other hand, from the business side of things, serving videos to the entire world is just not supportable at this time.” 

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