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If Facebook is spending $100 million for photo serving, how much will OnLive need for real-time games rendering?

By on March 27, 2009
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BusinessWeek reports that Facebook is seeking $100 million in debt financing for its rapidly increasing server needs.

The reason: photos.

Well, not quite, but Facebook had 10 billion photos last October, when it had 100 million users. Now it has 275 million users, and has to keep building the infrastructure.

Why am I posting this? As a datapoint for the ongoing analysis of whether OnLive, the streaming games service, can ever be economically viable.

As an aside, BusinessWeek seems to imply that Facebook seeking money for capital equipment is somehow a failure for Facebook. I’m surprised BusinessWeek is making this strange interpretation:

  • Debt is cheaper than equity in the long run. So it’s not strange that Facebook should seek debt financing rather than selling more shares to buy its capital equipment
  • Debt is difficult to get for Internet businesses, unless it is tied to the purchase of tangible assets, like servers. So this is a perfect project for which to raise debt
  • It’s ordinary course of business (as Facebook’s spokesman said). Frankly, the BusinessWeek article is a non-story, I only repeat it because of the datapoint.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve:
  • Graham

    I think the point the author is making is that by continuing to grow so fast its working capital needs are growing too fast. At some point they need to generate revenue. Debt is cheap now (if you can get it at all) but its cost will rise once the economic cycle turns at which point Facebook will have costs rising faster than its revenues. It risks being castrated by the scissor effect.

    Simply because Facebook has images and OnLive has video is no reason whatsover to compare the two.

    Facebook is about attracting eyeballs and then selling the company to someone else who can work out how to monetise that later. OnLive will be able to generate substantial revenues from day one by charging for the games – most likely on a subscription basis a la Metaboli et al.

    Commentators from the games industry seem to forget the existance of video-on-demand – something that is very close to the OnLive concept and which is offered by almost every major telco and cable TV operator in the world.