Facebook vs MySpace - Financial Cash Cow

Many people ask why Facebook and MySpace are valued so high financially, even though they really haven't made any profits yet. Also, normal consumers flock to their sites like ants to a cheese-puff, but don't consider the business side of the website's attraction, who cares right? Financially, why are Google and Microsoft spending so much money on MySpace and Facebook if they're not even making any money [AllThingsDigital article]? It's pretty simple actually.

We all know that MySpace and Facebook are built around making money from advertising, a business model that's a no-brainer. Analysts know Facebook isn't making money but values the company at $15 billion. These two realities easily explain the future shift of consumers and what habits they're addicted to.

In everyone's time period today, people hovered around their small tube television as the main source of entertainment. Whether alone, with family or with friends, people loved the television. It has also been the Hulk of advertising revenue. When you can get millions of people to center around one form of media, it becomes attractive to advertisers. The newspaper was a popular form of entertainment for consumers, but newspapers are obsolete now, so advertising is dying in that media sector. Today, without warning in the past, social community websites are the largest attractions for consumers now. If you don't have a page on Facebook or MySpace, then that means you don't own a computer or don't know how to use one. It is simply that popular.

With social networking's popularity today, there seems to be no slowing down on the growth. People want to stay connected. Because of this simple fact, advertising spending will continue to grow. The future looks bright for social communities, so why not take the risk of investing billions on a new cash cow?