The Day Facebook Couldn’t Monetize

            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.”