A dark cloud has been looming over the social media phenomenon
that has piqued the interest of young minds. The idea to take the entire social
experience and put it online was a major transformation that has constantly
increased its user activity, but like any good business it must be profitable. When Facebook went public its price was set at
$38.00 per share. Everyone remembers that day like it was Christmas, because
even if you didn’t watch the price fall that day, you never heard it take off
as expected. The problem: how much revenue are those advertisements really
generating?
Advertising made up 98% of Facebook’s
revenue in 2009 and 82% in the first quarter of 2012. Even though they are
working towards developing other outlets, it’s clear that a lack of advertising
revenue is the biggest factor holding shares of Facebook at such a low price. In
the Facebook prospectus, their risk factors include time spent on Facebook and
the increase in mobile usage of the Facebook app that does not currently show
any advertising. Let’s think about who uses Facebook and when they are using
it. Majority of users are high school and college students. Aside from when
college students are in class or studying in the library, they are more than likely
using the Facebook app on their IPhone. High school students are probably
checking their Facebook news feed in between classes and probably even during
class but since they aren’t typically allowed computers, they do this all on
their IPhone. So there’s a large piece
of advertising real estate on the mobile phone that is not being developed. But
how do you get people to look at advertisements without losing users?
Here
are two success stories with advertising. What’s something we use almost every day that has advertisements
on it but we constantly use it to find that hilarious video of a cat chasing a
laser pointer, or watch that brand new music video of Justin Bieber? Youtube
has been at the heart of this debate simply because it has successfully integrated
advertisements into its platform. After watching several videos it will
eventually pop up with a 15 or 30 second advertisement. We don’t like them, but
we deal with it. Hulu is another great example of successfully integrating advertisements.
We watch a short ad before our TV show comes on, we watch a longer ad in the
middle of the show, and we watch a short ad towards the end of the end of the
show. In two minutes out of a thirty minute show we have all of our advertisements.
This works because it’s better than the alternative. I’d rather give two
minutes split up in the three segments than give 9 minutes split up four times
throughout my show as typically seen on cable TV. But what’s the alternative to
Facebook? The age of calling someone on the phone to see how they’re doing?
Well that’s just ridiculous.
So can
Facebook increase revenue through advertisements or will users continually
write them off as useless distractions? It’s possible if they use some of the
aforementioned methods but it will take guinea pig trials and, so far, their
attempts have failed. It was said best
in Aaron Sorkin’s screenplay for The
Social Network when the character Mark Zuckerberg said, “TheFacebook is
cool, that’s what it’s got going for it. You don’t want to ruin it with ads
because ads aren’t cool.”
