Facebook – The Honeymoon Is Over [Research]

5 Reasons Facebook Revenue Potential Is Challenged

For Facebook, the honeymoon defined in terms of hyper growth, increased engagement, and easy revenue generation, is over. While Facebook isn’t at risk of disappearing from the social media landscape any time soon, as a media entity, it’s matured.

Just like any newlywed couple building a new life together, Facebook must bring in sufficient money and take care of its members. Here are five challenges for Facebook’s long-term revenue prospects.

  1. Facebook has reached the upper bound of new users. Facebook has penetrated most of its prime target markets. It’s extended across a broad range of age segments above the age of 13 who have a computer or connected device. Further, Facebook has expanded geographically into many countries (China is the major exception.) While Facebook will continue to grow, it’ll be at a slower rate of growth, reaching people who are new to the connected market.
  2. Facebook has limited potential to extend participant time-on-site. As of December 2011, US Internet users spent roughly one quarter of their online time on Facebook according to Nielsen. It’s unlikely that Facebook will be able to significantly expand a member’s time on site, especially users who’ve been members for a while. People still need to eat, sleep and go to work (or school.) Further, it’s unlikely Facebook will extend into a work powered tool or replace other forms of forms of communications that broadly. It’s not where the business user goes.
  3. Facebook hasn’t monetized its mobile traffic. While Facebook is just about to start serving mobile ads, this option has a limiting upper bound, at least in the short run, because mobile advertising spend is out of line with time spent on mobile devices. Further, from a marketer’s perspective, mobile Facebook advertising is less important than mobile search and deploying mobile websites so retailers can reach consumers on-the-go. Therefore, while mobile Facebook advertising will generate revenues, it will take time before they’re a significant contributor to the bottom line.
  4. Facebook has tapped out the casual gaming segment. Facebook gamers have declined. According to IHS Screen Digest Media Research Insight report, about half of Facebook’s monthly active users (or MAUs) were gamers in 2010. While the absolute number of gamers remained constant, only a quarter of Facebook’s MAUs were gamers by the end of 2011. Further, Facebook’s 800 pound gorilla of gaming, Zynga, experienced a decrease in MAUs from 3Q2011 to 4Q2011. These declines in Facebook’s gaming MAUs translate to greater challenges attracting new gamers and increased cost per acquisition. The maturing of the Facebook gaming market will increase the need to improve gamer retention and monetization while improving game quality and increasing engagement. These factors will cause a move away from more casual games towards more committed forms of gaming such as strategy, action and casino games.
  5. Facebook hasn’t delivered sales for major f-commerce players. On Facebook, Payvment is the number one social commerce option powering 150,000 Facebook storefronts or 80% of Facebook shopping. While their tag line focuses on connecting products, customers and conversations, marketers are looking for sales. Although consumers check their smartphones and tablets for reviews and price discounts before they buy, they aren’t purchasing via f-commerce because it hasn’t yielded sufficient ROI. This makes sense from a consumer behavior perspective, because social media is for socializing not buying. Facebook and other social media platforms are useful for aiding product discovery but they’re not necessarily where consumers (or retailers) want to close the deal. As a result, a number of leading etailers including Gap, Nordstrom, J.C. Penney and Gamestop have closed their Facebook storefronts!

What Facebook’s challenges mean for marketers

While it’s still to soon to forecast Facebook’s true revenue growth, it’s safe to say that many of the predictions are overstated. Here are three factors marketers should be aware of.

  1. Cost of new Facebook marketing products will increase. As Facebook starts to create new advertising and products to attract marketers’ attention, beware that they’ll carry high price tags to enable the firm to make up potential revenue. It will be a lot like the pricing on search engines where qualified segments are limited.
  2. Engaging with prospects on Facebook will require greater time and investment. With about two thirds of adults maintaining a presence on a social media network, they’ve become more proactive in managing their public social media personas. Facebook participants are becoming more selective in their connections and privacy settings. Profile pruning is increasing according to recent Pew Internet Research.  About a quarter of users have some level of privacy in place.  Further, understand that many consumers on Facebook won’t purchase a product unless there’s a promotion or price discount.
  3. Landing pages and commerce on your site must be focused.  As with any purchase process, getting customers to leave Facebook and come to your site is the toughest part.  Use a contextually relevant call-to-action with a targeted promotion code. To this end, make sure your shopping is focused and streamlined to close the deal as quickly as possible.

Facebook must confront the challenges of a maturing market just like a couple after the thrill of their honeymoon. To this end, it will test a variety of revenue options to keep the money flowing. The result for marketers will translate to increased Facebook marketing costs and support.

Are there any other Facebook challenges you see? If so, what are they and what’s the basis for your assumptions?

Happy marketing,
Heidi Cohen

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