In what is expected to be the biggest tech IPO in recent times, Facebook, the social networking site will go public this week at Nasdaq,
The IPO, is already oversubscribed with the company increasing the number of shares it’s offering by nearly 85 million. It’s now expected to raise more than $15 billion in Silicon Valley’s largest market debut. Facebook also hiked its price range from $34 to $38 a share, up from the previous range of $28 to $35 a share.
While there is massive interest in the company’s IPO, there are also increasing questions about whether the site will be able to live up to investor expectations. The one particular concern that will continue to haunt Facebook is advertising, since it is a major source of revenue for the company. And today’s news, where GM stated that it would be pulling off ads from Facebook as they didn’t having any impact on consumers, has sparked off debates and concerns.
The big question: Do Flikes actually mean anything on Facebook? According to a recent Associated Press-CNBC poll, users surveyed in the poll say they do click on the site’s ads or buy the virtual goods that make money for it. However a lot of them also said they don’t trust Facebook and its privacy policy, which has often come under criticism. The perception that Facebook is a privacy violator could be the biggest threat to its success. Users won’t click on ads if they feel Facebook could be selling their private information illegally, even if this might not be true.
Advertising on Facebook, will always be subject to scrutiny. Advertisers, analysts will ask if users are actually engaging with the product or just giving superficial likes which don’t mean anything. That question may not have such an easy answer.
Advertising on Facebook, will always be subject to scrutiny. Getty Images
But Facebook’s ad business has been booming. According to BusinessInsider
Facebook had a great Q1 2012, with a 41 percent increase in ad rates (the cost-per-thousand impressions that advertisers pay), according to TBG Digital, a major seller and manager of Facebook advertising campaigns. But click-through-rates in the US softened—not a good sign.
But as the report points out— Twitter still commands a higher ad price than Facebook.
On the other hand, AllthingsD’s, Peter Kafka is more cautiously optimistic, stating that advertising on Facebook will go up. He writes,
Facebook sold $3 billion worth of ads last year, and it’s just getting started. Imagine what happens when things really kick in. But if you’re a skeptic, and there are lots of them, that uncertainity is a real problem. When Google went public in 2004, it had already built AdWords, the search ad engine that still generates the majority of its revenue today. Facebook doesn’t have an AdWords, so it doesn’t have a tried-and-true plan it can present to advertisers: Put dollars in here, see results over there.
The other concern has been over how Facebook will generate revenue from mobile. This is especially important, since a majority of Facebook users are now accessing the site via mobile. According to TechCrunch’s Josh Constine,
Handheld devices have less room for ads and Facebook’s long list of features. Currently, Facebook only shows a few mobile news feed ads per user per day, while it shows as many as four to seven ads per page on the web. But if Facebook chokes mobile with too many ads, usage could plummet.
So is GM’s ad withdrawal such a big deal? Not really if one sees it in terms of just numbers. GM spends about $40 million on its Facebook presence, but only about $10 million of that is paid to Facebook for advertising. The rest covers the creation of content and the agencies involved in maintaining its page, according to The Wall Street Journal which broke the initial story.
What is important is that GM is a pretty big brand and the timing of its ad withdrawal could make other advertisers more critical of their ad campaigns on Facebook.
No one can deny that a Facebook share is a must for every website and brands that hopes to succeed online. But whether shares and flikes will be enough to keep Facebook afloat is another question all together.
