• Forbes, Tuesday, April 7, 2009 12 PM

Facebook has been "a remarkable success as a social network" but not so much as a business, notes Forbes writer Taylor Buley. The social networking giant has 200 million worldwide users, 11 offices around the globe, and more than 800 employees. "Operating at such a large scale isn't cheap," says Buley; insiders tell him the company's burn rate is over $200 million per year. Even if it were half that figure, Buley suggests the company would need to seek additional funding.

How could Facebook raise $100 million? Buley uses the company's own advertising tool to estimate how many ad impressions or clicks would generate $100 million. He comes up with the following ideas: 1) Show 34,100 ads to each U.S. woman on Facebook aged 35 and up, or convince all U.S. men aged 35 and up to click on 28 ads each. 2) Show every U.S. high school student on Facebook 93,300 ads each, or get every U.S. college student on Facebook to click on 25 ads. 3) Display 421,000 ads to each Facebook user living in Germany, or get all users living in China to click on 1,362 ads a piece.

In using Facebook's ad tool, Buley finds Facebook charges very low rates for CPC and CPM campaigns. In fact, for all it's precision, Facebook typically charges less for more precise audience slices. For example, "The approximately 2,300 U.S.-based Facebook users with a Harvard degree in economics fetch a meager 3 to 13 cents per click," Buley notes. "But if you aim to advertise to all 29,000 U.S.-based Harvard graduates, Facebook will suggest a bid of 54 to 71 cents." Obviously, there is a much smaller market for ads with that kind of precision, so why is Facebook selling them on an auction basis?

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