Coming off a successful IPO questions remain regarding the monetization of Facebook and thereby the justification of the substantial multiples at which its stock is currently trading.
There is a justified concern that Facebook is
1) Not growing revenue at a rate fast enough to justify its $100 billion (+/-) market cap.
2) The ads on Facebook don’t work well (See GM’s $10 million cancelation).
4) Not prioritizing earnings and revenue to the degree in which they should.
I believe that these are all legitimate concerns, but ones which can be addressed in a way which will not negatively affect the user experience. The bottom line is that Facebook has the opportunity to become a very Google-Like company in terms of scope and profitability. However, the organization must be careful as one or two major missteps will cause growth and thereby investment to languish.
Here are 5 thoughts on how Facebook can monetize faster while protecting the user experience.
1) Separate Ad product team from user product team. Facebook’s ad products are in desperate need of innovation. This will be slow in coming as long as you try to keep the two married. By separating ad product development from user product development you create an environment of creative destruction and some healthy tension. As long as there is a strong voice in Mark Zuckerburg with the final say the user experience will be protected.
- Facebook may also want to rethink its ad sales. I constantly hear that the current sales organization is quite difficult to work with.
2) Begin to charge on a tiered basis for Facebook business pages. There is absolutely no reason why Facebook should not be charging for the use of business pages, especially for large corporate clients, such as GM, who utilize the space as a major part of their overall business social PR strategy. The key here is to tier pricing based on numerous factors so as not to drive away local mom and pop businesses with a few thousand followers and thereby create a public backlash. Therefore I would recommend the following to take place.
- Tier pricing based on followers. Ex 1-5,000 free, 5,001- 10,000 $150/month and so on.
- Charge businesses to upload rich media and set up graphics.
- Again, make certain you are capitalizing on the people who are using your product to capitalize on the market.
- Develop custom premium ad tools that are available on a paid-for basis. Perhaps consider purchasing a Social DSP and looking for ways to integrate it’s capabilities directly into the Facebook platform.
3) Allow for sponsored news feeds: It’s working (sort of) for Twitter and given the higher levels of penetration and engagement on Facebook it is a no-brainer. I would even suggest only allowing local businesses to use this feature. This will keep the content more relevant and less obtrusive to the average Facebook user.
4) Incorporate sponsored feeds into your mobile platform. This creates instant mobile monetization and is a compelling creative in a space that lacks creative pizzaz.
5) Rethink your current “display” ads. They’ve gotten you this far. But the creative design is crap, and by not capping frequency you have disregarded 100 years of marketing research. It’s time for your core ad product to get a facelift.
These are just a few ideas. Facebook has innumerable levers they can pull in order to turn on the revenue ramp. It will have to be done with a balance of delicacy and assertiveness. A few missteps can mire any organization in an unhealthy malaise and Facebook is still a relatively new company so each decision will be viewed under a microscope.