What Facebook’s IPO Means For Marketers
As Facebook’s IPO nears, there continues to be speculation about the firm’s worth, especially after its disappointing first quarter, 2012 results. For marketers, the question is how will Facebook change their business model and what impact will it have on their budgets? (Here’s a white paper assessing publically available information on Facebook’s IPO by marketing data scientists Rhonda and Perry Drake of Drake Direct.)
Facebook is projected to have 2012 revenues of $5.06 billion, of which roughly half comes from the US, based on eMarketer forecasts.
Roughly $3 billion will be from advertising, making Facebook’s $100 billion valuation equal to 33 times its advertising revenues, according to the Wall Street Journal. (Check here for more Facebook IPO related data.)
Here are five points where Facebook’s IPO could have an impact on marketers and their budgets.
- Fees for Facebook brand pages. Currently, Facebook doesn’t charge businesses to establish a presence on their platform. While the Drakes point to the decline in the number of fan pages, charging firms remains an option. Actionable Marketing Insight. This option could be loaded to target larger, top 100 advertisers with big budgets. While many major advertisers have Facebook pages, they tend not to pay for Facebook advertising. For example, Ford’s 2012 Focus campaign used a free Facebook page. Any fee based option, whether based on number of fans or special add-ons, would be small relative to offline marketing alternatives for top advertisers. As a result, any brand page charges would take into consideration smaller firms, not-for-profit organizations, and fans who wanted their own site.
- Advertising on Facebook. Facebook is the major social media adverting vehicle. Its major challenge is that advertisers can’t track measurable results to their investment! Further, as with the maturing of any digital advertising medium, Facebook’s click-through rates tend to erode over time. According to TBG Digital, Facebook experienced an 8% decline in the US. Despite, this Facebook’s cost-per-click has increased almost 25%, according to TBG. This is a attributable to the change in the type of participants over time. Actionable Marketing Insight. Regardless of the number of Facebook members, the cost of advertising will increase based on market demand. If companies all want the same advertising positions against the same member profiles, it will bid up the prices. Just as the cost of paid search has increased despite a flattening of search use, the same will happen on social media advertising platforms. This may be further enhanced in developed markets due to desired location of participants.
- Facebook mobile advertising. Mobile advertising is an area ripe for generating Facebook revenue since it already has a strong installed user base combined with that of the recently acquired Instagram. Actionable Marketing Insight. While Facebook can grow it’s presence in this market once it introduces its offering, Facebook still faces strong competition from Google, which is installed as the default search engine on most smartphones; location based services, like Yelp and Foursquare; and installed apps, namely Amazon and eBay.
- Increased acquisition cost per Facebook fan. According to TBG, the average cost per fan increased over 40% in the first quarter of 2012.
Contributing to this trend was the increase in Facebook advertising and the decrease in ad effectiveness. Actionable Marketing Insight. Marketers must include the cost of any incentive (translation: discount promotion) and related costs of keeping fans engaged and buying. Further, the attraction of a Facebook connection is often primarily focused on the discount. To keep fans engaged often requires more discounts. As a marketer, this is a slippery slope that doesn’t translate well to great ROI.
- Fees for referral traffic from Facebook. Facebook has had almost a 200% increase in click-through rate on news stories. Referring traffic is at the core of search and other major sites like Yahoo Finance. Marketers pay for traffic that comes from another site. Maximize your impact through strong headlines and related content. Actionable Marketing Insight. Fees would matter most for sites that were able to easily monetize the traffic such as financial sites.
Regardless of how you look at it, Facebook’s IPO translates into higher marketing expense. Therefore, determine how important these participants are to your brand and your sites. Also value Facebook traffic based on how well you can track participants and convert them to paying customers.
In what other areas do you think Facebook’s evolution is going to result in higher marketing costs and why?
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