Tuesday, July 30, 2013

(Business) Facebook: Proving them Wrong

With the news of Facebook posting positive quarterly results derived mostly from ads, the company can celebrate and dish out a few ‘I told you so’ messages to analysts across the media landscape as many were quick to descend on Facebook after a number of high profile companies abandoned its ad service. Now, fueled by mobile ads, Facebook has seen resurgence after recording a 25.6% in share price and posting $333m in profit[1].

Most of the triumph is owed to the performance of mobile ads on it platform as it “made up 41% of advertising revenue for 2013 first quarter[2]. It was feared that Facebook wouldn't be able to make online advertising work and for some time it looked like it wasn't  but recent results indicate that the social media giant has finally managed to master it role as “conduit between users and brands”[3].

However, while Facebook’s second has been impressive, there may be problems ahead as despite the growth of its ads operation, user engagement with ad placements are poor to say the least as “ 76.4 percent of Facebook’s users say they “never” or “rarely” click on advertisements or sponsored listings”[4]. This would seem to be damning for a company that relies on ad revenue but as always, where there is a negative, a positive is not far behind.

 While Facebook users and net users writ large don’t engage with ad content, Facebook could, according to IBT’s Lisa Mahapatra, Facebook bring in an extra £170m annually just by charging it users to avoid being hassled by ads “If only 10 percent of Facebook’s U.S. and Canada users opted out of ads at the low cost of $1/month”[5].

10 percent is a realistic number but it doesn't cancel the vast number of Facebook users who are less than hot about coughing up as according to a poll conducted by Greenlight, 85% of users “would not pay” to “use Facebook without ads”[6]. However, Facebook could get more users to pay to use an ad free Facebook as The Drum reported that 15% of users would “pay more than $5 to see no ads”[7].

In sum, Facebook has proved critics wrong it has been able to make ads pay in an age that is still quite skeptical about whether ads can work on then net due to a clear ambivalence toward online ads by net users. However, Facebook even have an opportunity to capitalize on the widespread dislike of online ads which means Facebook cannot lose which is good news for a company that can profit from the hatred towards its main source of profit.

[1] BBC News, 2013, Facebook results drive shares to a 30% gain,
[2] J. Jerreat, 2013, Facebook silences its critics with 20% jump in value thanks to strong mobile ad sales, http://www.dailymail.co.uk/news/article-2377579/Facebook-hits-doubters-20-share-price-jump-thanks-strong-mobile-advertising-sales.html
[3] Ibid
[4] L. Mahapatra, 2013, Facebook Has Reached Its Full Potential. Here’s how it can make more money, http://www.ibtimes.com/facebook-hasnt-reached-its-full-potential-heres-how-it-could-make-more-money-charts-1362795
[5] Ibid
[6] Ibid
[7] J. Faull, 2013, %15 of Facebook users would be willing to pay more than $5 to see no ads, http://www.thedrum.com/news/2013/07/25/15-facebook-users-would-be-willing-pay-more-5-see-no-ads

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