Revenue Required For Keeping Facebook Afloat, Where To Find It?
June 6, 2012

Revenue Required For Keeping Facebook Afloat, Where To Find It?

John Neumann for

Will Facebook´s IPO be the start of its downfall? The social networking behemoth may have 900 million users but they are not clicking on many of its advertisers' links, and unless Facebook can begin showing results for its ads, the money will soon be drying up.

In other sobering news, a recent Reuters/Ipsos poll found that 34 percent of Facebook users surveyed were spending less time on the website than six months ago, whereas only 20 percent were spending more, writes Alexei Oreskovic for Reuters.

The poll also found that four out of five Facebook users have never bought a product or service as a result of advertising or comments on the site. Is this a sign of users' wariness towards having ads pushed at them at every turn?

Such results underscore investors´ worries about Facebook´s money-making abilities at a time when its stock is down 29 percent since its initial public offering last month, reducing its market value by $30-billion to roughly $74-billion. That may be alright for founder Mark Zuckerberg, who has cashed his paycheck, but not good news for the investors who were investing in the company for the long haul.

Refusing to comment in detail on the survey, Facebook instead referred to case studies of companies such as Nutella, which found that a 15 percent increase in sales was attributable to Facebook, and restaurant chain Applebee´s, whose Facebook ads delivered a threefold return on investment.

Effective advertising is a tricky business, a lack of direct clicks doesn´t mean its ads aren´t creating brand awareness. At the same time, likes and click-throughs don´t necessarily result in sales. The success of an advertising campaign must be considered in relation to the product, Steve Hasker, president of Global Media Products and Advertiser Solutions at Nielsen, told Reuters.

“If you are advertising Porsche motor cars and you can get 20 percent of people to make a purchase, that´s an astonishingly high conversion rate,” said Hasker. “If you are selling instant noodles, maybe it´s not.”

Facebook has been testing out new products such as Highlights and Promoted Posts, which let users and businesses pay for their posts to reach a broader audience, writes Techland´s Keith Wagstaff.

Keeping users coming back was crucial for all social media services, said Gartner analyst Ray Valdes. “Facebook continuously has the challenge of Facebook fatigue, of the novelty factor wearing off, and therefore they have to introduce new kinds of interaction.”

An increasing use of mobile access to Facebook is a drag on revenue as it offers only limited advertising on the mobile version of its site and analysts say the company has yet to figure out the best way to make money from mobile users