What the Media Gets Wrong with Facebook

Be-Wrong-image

Facebook does not make any money.

Facebook advertising does not work.

Facebook is not effective when it comes to mobile.

Facebook could be the next MySpace.

These have been the predominate sentiments that have been expressed ahead of and since the Facebook IPO.

First of all, I do not pretend to offer stock or investment advice. I cannot, nor am I interested in, defending the stock price or supporting their valuation claims.

However, I would like to explore these other claims.

 

Facebook does not make any money

Facebook makes money.  Facebook is in fact profitable.  According to their documents filed with the SEC, Facebook generated 3.7 Billion dollars in revenues in 2011 with a profit of 1 Billion dollars. Facebook has nearly 1 Billion users. If Facebook can further penetrate emerging markets as well as beat out some rivaling networks in other regions, Facebook could reach 2 Billion users worldwide. Listed among their weaknesses is advertising on mobile. Just ahead of their IPO, Facebook rolled out ads on their mobile app. Currently the advertising volume is low, but it will grow and no doubt, Facebook will find other ways to monetize mobile.

Mark Zuckerberg has made clear his intentions in developing services around Facebook.  In the Facebook IPO prospectus he wrote “we don’t build services to make money; we make money to build better services.”  Facebook is committed above all to user experience.  Without users, advertising is worthless.

Facebook Advertising Does Not Work

This could take up several posts of its own. However, much of the criticism of the Facebook advertising model has been misinformed. Much of the media has been citing polls and anecdotal evidence regarding pay-per-click ads or display ads. These ads have been the  stalwart of web advertising and fall in line with the traditional interrupt and distract methods of advertising. These types of ads make up a very small portion of the Facebook advertising portfolio. Facebook’s advertisements are contextual, and for the most part are content or are a result of actions taken by people in your personal network.

The reporting on this has revealed a couple of different realities.  First, many users on Facebook do not even recognize when they are being advertised to since they are merely responding to content.  Secondly, comparing traditional distraction and interruption advertising with paid content that is contextually welcome, are not equal comparisons.

 

Facebook is not effective when it comes to mobile.

Mobile is the new frontier. Smartphone ownership has