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Facebook: The Social Emperor's $100B Invisible Suit Could Become Real, One Day

Posted: 05/17/2012 10:32 am

Investors clamor for Facebook's IPO, a $100B+ invisible suit for its founder and CEO Mark Zuckerberg this week. As one of the first five digital publishers on the Internet, I can say that you might as well put your money in the toilet and flush, unless Facebook reinvents itself a bit.

The Internet is not a level playing field. It's the ocean. You don't run it. You pull out a surf board and hope that you catch the right wave before one comes along and sucks you to the bottom. Such has been the case for Internet advertising since the web came to public prominence.

We created the first sports magazine with a cover and magazine layout on the Internet in 2000. MinorLeagueNews.com, which later became MLNSports.com. In the early days of the web, we received big incentives, fat juicy .30 and .40/per click rewards from the pioneering advertising companies for placing ads on our articles.

Then, as Google assumed control of the ad business online, it became .30 per hundred, .30 per thousand, and so on, until you had to have sites with more than a million hits a day, equivalent to four times the readership of most small to medium daily newspapers, to earn more than hen scratch. We were forced to go to subscription to keep our staff of professional writers and photographers paid.

On the reverse side, as an advertiser, the biggest flaw we've always found in Internet advertising is the lack of localization.

I see an ad for something I want on page two of the New York Times, and it's going to be there a day or two later when I drag it out of the recycling bin to find it. Try to go back to the page where you saw an ad, and what do you see? A different ad.

Eyeballs were on it, but the hubris that someone will react to it immediately like a Pavlovian dog simply because you put it out there is one of the great con games of Internet-based advertising. People pay for "impressions" that lack the consistency of location to make a full impression on consumers.

In comes Facebook with a new model. They plop targeted ads down based on what your friends "like." They also have "pages" where companies can host social networking of their own.

The Facebook IPO is predicated upon the ads, not the pages, because the pages aren't monetized. The problem, at least for investors, is that the pages drive communication and sales, and Facebook's ads are a big fat zero.

Take the test that NPR's Planet Money did with a Facebook ad for local Boston pizzeria Pizza Delicious. Their $240 dollar investment netted a fraction of actual revenue invested, even with the owners working very hard to see how people buying pizza during the advertising period.

By contrast, Pizza Delicious has a "page" on Facebook. 2,374 people have already "liked" it. That means that they see "news" from PD's page when they put it up. Right now, the restaurant is showing off pictures of the construction of its new digs. It can do more, though.

Facebook is a social medium. You have to do social marketing. If they put up a "name the pizza" contest for some new creation, or asked their fans not only what their favorite pizza is, but to come up with some signature creation of their own that will bear the winner's name, they will generate social "buzz" that will lead to more sales.

Throw on the occasional coupon available only from the Facebook page, and they can see measurable results because they're involving people in their pizza universe.

The demographics for the buzz that a Facebook commercial page can generate versus one of their ads can be stark. With 2,300 fans, they can get "buzz" by Facebook metrics at least, of people talking in the tens of thousands. The reach supposedly comes from friends sharing with friends.

In real-world terms, though, our Truth-2-Power.com publication has had days with 12K+ fans talking about us on Facebook, who just don't apparently leave Facebook. That 12K buzz might only translate to 500 or fewer people who leave the social network's pages to actually read the article in our ezine that is being referenced on our "fan" page.

So even though Facebook's commercial pages are a far better advertising medium than their ads, and legions better than Google AdWords, you may still see only a 4 percent actual increase in business brought in to a website outside of Zuckerberg World.

Is that worth the astronomical valuation of Facebook? No. The only thing that can reasonably cover the premium that will likely be paid for IPO shares of the social networking goliath is that somehow, somewhere down-road, the emperor's clothes will magically appear. They might, though, if Facebook can address one of the great hobgoblins of the great minds that created the commercial Internet: Getting money to the content creators.

Google, Facebook and other big ad players suck up the lion's share of revenue in the online advertising game. The actual content creators, the artists, bloggers, publishers, musicians, videographers, photographers, etc. see little, if anything, even if they can draw readers/viewers at the rate that commercial newspapers and television stations do in the real world.

Rewarding Facebook for yet another amorphous gathering of Internet humanity that avoids ads like the plague and travels digitally out of the Facebook neighborhood like a shut-in, will not make the shareholders money. Monetizing their share of money gathered for the content creators will.

If Mr. Zuckerberg is true to his word, and still says that his focus is on the social mission, not the bottom line, he can actually help the bottom line, and find the growth for his new shareholders.

Should Facebook take that new-found wealth and buy a WordPress and a SoundCloud and one of the Photo sites, and help content creators get money for their work, an Idea Supermarket, they can make commissions selling that content, and even some ad revenue promoting that content.

What happens inside Facebook stays inside Facebook. Content is king, and it can turn the promise that shareholders are buying this week into currency they can pocket in the weeks and months ahead.

My shiny two.

 

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