Facebook Sets Its Sights on Advertisers

With more than 900 million active users who produce at least 3 billion comments daily, it is difficult to ignore Facebook as a marketing platform. Despite a disappointing debut as a public company, the behemoth social network has dusted itself off and is now accelerating its attempt to woo advertisers.

On May 17, the day before its stock imploded, Facebook announced it had raised $16 billion in an initial public offering, valuing the company at $104 billion. It is the largest Internet IPO in the United States to date and the third largest in the world, after Visa and Italian utility firm Enel SPA.

The next day proved to be even more dramatic. Due to a technical delay at Nasdaq, Facebook's stock, under the symbol FB, hit the stock market a half hour later than expected. Concern that Facebook was overvalued also pushed its stock down by as much as 32 percent from its IPO price of $38 the day before.

The following week, investors sued Facebook, along with Morgan Stanley, Goldman Sachs, JPMorgan Chase, and other underwriters, claiming that Mark Zuckerberg's company and its underwriters did not publicly disclose lower revenue estimates before the share sale.

Even though the IPO debacle has been a huge headache for the world's largest social networking site, Rohit Bhargava, senior vice president of global marketing strategy at communications agency Ogilvy, thinks Facebook is more concerned with finding additional ways to monetize its site.

"I think the broader question is, will marketers really see the need to spend money on Facebook when so much of what they can already do and the engagement they can have is done for free?" Bhargava says.

Part of the social network's strategy should be to make its platform more appealing to large brands, Bhargava adds. "Simply doing home or logout screen takeovers isn't going to cut it," he says. "[Facebook] needs to get better at describing and quantifying the options that they have available for larger advertisers."

General Motors, the third largest advertiser in the U.S., created some buzz when it revealed that it would discontinue its paid advertising on Facebook—translating to a loss of about $10 million for the social network—but would continue to engage followers via its fan page.

Facebook mainly earns revenue through its advertising platform. It helps advertisers target their ads at specific groups of Facebook users, based on aspects of its members' profile data. When Facebook users buy virtual goods on social games created by third-party app developers like Zynga, the company gets a cut of those profits too.

The social network has been experimenting with more advertising tools, such as an app store, coupons for local businesses, and a real-time bidding platform for targeted ads. It has also started showing its Sponsored Stories, ads triggered when a Facebook user "likes" a brand or business, on Zynga.com.

When it comes to mobile devices, Facebook has acknowledged that a growing number of users are accessing its site via mobile apps and its mobile Web site, but it shows few ads on these channels, presenting both a challenge and an opportunity for the company.

In its Form S-1, a document filed with the SEC, Facebook notes that the number of people who access its site on mobile devices is "increasing more rapidly than the increase in the number of ads delivered," and if the company is "unable to successfully implement monetization strategies for our mobile users…our financial performance and ability to grow revenue would be negatively affected."

In addition to its $1 billion acquisition of photo-sharing site Instagram, Facebook has been building out its mobile offerings by acquiring location-based application Glancee, social-gifting company Karma, and Face.com, a maker of mobile facial-recognition software.

It is only a matter of time before mobile users start to see more advertisements popping up on their Facebook apps, says Lon Safko, a marketing consultant and author of The Social Media Bible. "Eventually we will get advertised to on our mobile devices…. There's just too much PC time shifting over to mobile," Safko maintains.

Bhargava agrees that if Facebook does it correctly, it is likely to draw more advertisers to its platform. "When [Facebook has] started to crack the code on what else…companies will be willing to pay for," he notes, "then the real revenue will start to come in."

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