Falling Flat On Its Facebook

Facebook's stock price has spiraled downward since the IPO, but that might be the least of its troubles. Marketers are dissatisfied with the value of advertising on Facebook and even users might be tiring.

Dino Londis, Contributor

June 6, 2012

4 Min Read

The Facebook IPO has been a disaster. According to Bloomberg, it was the worst of the decade. But in a way that's the least of Facebook's troubles. Prior to the IPO, ad growth was slowing and research is beginning to show that ads on Facebook aren't effective. According to a recent Reuters poll, four out of five Facebook users have never bought a product or service as a result of advertising or comments on the social network site.

For all the promised deep understanding of users' likes and wants, advertisers aren't impressed. General Motors pulled its $10 million ad campaign because it was ineffective. Facebook countered by saying that companies like Nutella posted a 15% increase in sales through the use of Facebook. Oh, really? Nutella? General Motors is the third largest advertiser in the U.S. Of course, to be fair, Nutella is the single largest hazelnut-based sweet spread advertiser in the U.S.

General Motor's withdrawal points to a more systemic problem for Facebook, which Forrester Research Analyst Nate Elliott detailed in his blog, saying Facebook isn't taking marketing seriously and needs to funnel the same amount of resources toward marketing analytics tools that it regularly awards to new gadgets. "Somehow Facebook still hasn't stumbled upon a model that's proven consistently successful for marketers, or that brings in the massive revenues to match the site's massive user base," wrote Elliott. "One global consumer goods company told us recently that Facebook was getting worse, rather than better, at helping marketers succeed. And companies in industries from consumer electronics to financial services tell us they're no longer sure Facebook is the best place to dedicate their social marketing budget--a shocking fact given the site's dominance among users." True, if Facebook were serious about marketing, it would have purchased a marketing analytics tool instead of--or as well as--Instagram.

The introduction of Timeline and App Center and the purchase of Instagram were all to keep the shimmer on the eight-year-old site and give users new reasons to return. But it might not be working. Of those surveyed in the Reuters poll, 34% said they were spending less time on Facebook than six months ago. Half said their time spent was unchanged and 20% said they were using it more.

So to increase its base and open up new potentially lucrative markets, Facebook is testing controls to allow children younger than 13 to open Facebook accounts. How can that be good? "With the growing concerns and pressure around Facebook's business model, the company appears to be doing whatever it takes to identify new revenue streams and short-term corporate profits to impress spooked shareholders," said Jim Steyer, CEO of Common Sense Media, a review site for children's media.

Just its stock price, or its fate as well?

But that will be a difficult climb both technically and politically. In a statement Facebook highlighted "just how difficult it is to enforce age restrictions on the Internet, especially when parents want their children to access online content and services." There is no instrument to prove who you say you are on the Internet. And Facebook is notorious for consistently opting users in to the new relaxed privacy settings coupled with a baffling array of controls to opt out. Parents are left to wonder if they can trust Facebook with their kid's privacy when it's been so cavalier with theirs.

The thing about bubbles is you're never quite sure you're in one until it pops. The Facebook IPO is that pop. Looking back, would Color--a smartphone app to share live video and images --have raised $41 million when it was just vaporware? A billion dollars for Instagram seemed pricey a month ago for a company with 13 employees. What could it fetch today? Is Path wondering if it should have turned down Google's $100 million offer?

Flush with money and stockholder's expectations, look for Facebook to throw money at projects such as:

  • A Facebook Smartphone, for which Facebook is said to have hired former Apple iPhone engineers when it found it couldn't build the hardware in-house.

  • Opera, the lightweight portable browser that runs well on mobile devices. It could be a good fit for the Facebook Smartphone.

  • Face, the face recognition software. A step toward proving you are really you when you sign in, and maybe toward putting parents at ease when Facebook encourages grade schoolers to sign up.

Facebook peaked on May 18 and the luster is gone both for investors, advertisers, and users. Facebook won't disappear--in the same way Yahoo won't disappear--but the tide of people who rolled in can just as easily roll out to the next new thing.

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