Last week investors were clamoring to get a piece of the Facebook action as the company had the third largest IPO in U.S. history, with a market cap at just over $104 billion. Monday, the stock closed at a low of $34.03 or 10.99 percent down with a less than stellar opening this morning. Sentiments expressed from people I have spoken with this week have been from Facebook is a fad (I disagree), to predictions that there will be something better than Facebook to come out of Silicon Valley (switching costs are too high unless people get bored and move to better, more interesting content elsewhere), to whether anyone will willingly click on a Facebook mobile ad or "sponsored story."
Let's take a step back from the IPO-hype and look at the numbers. Facebook is the world's largest social network, with over 900 million monthly users worldwide, and roughly 200 million in the United States. To summarize those figures, even your grandmother is on Facebook. The issue most of us are questioning is whether Facebook, which has over 425 million users accessing Facebook from a mobile device every month, can make significant revenue from mobile. This is a concern because the company needs to offset the decrease in revenue from users no longer logging on to the social network from their personal or work computers. The majority of Facebook's revenue today comes from web advertising, but can the company translate their now questionable value-add for businesses to mobile advertising?
Madison Avenue is starting to reveal some skepticism: "My colleagues and I have spoken with several other advertisers who were already thinking of putting their dollars elsewhere," said Melissa Parrish, an analyst at Forrester. "Now that G.M. has done so in such a large and public way, many of the fence-sitters will know that they're not alone." For Facebook, the loss of a $10 million advertising contract with GM is not a major blow to the company as they generated $3.7 billion of revenue in 2011, 85 percent from advertising. But could we see more brands follow suit and cause a mass exodus?
The much speculated issue for businesses advertising on Facebook is "How do we get our message in front of new customers and reach beyond the 'like' button"? The new opportunity for businesses to advertise with Facebook clearly lies within the mobile arena, and the biggest challenge for Facebook will be to find a solution that seamlessly integrates mobile advertising into the platform, without causing ad-abandonment from their 425 million mobile users.
Keith Teare, co-founder of TechCrunch and founder of new mobile app Just.me explained in a recent article:
"The challenge faced by any content based mobile platform will be to try and figure out a revenue strategy that can monetize mobile use as mobile minutes cannibalize desktop minutes in the months and years ahead. There are many efforts to figure this out. From virtual goods in the context of games (Zynga and others); to subscriptions for high quality content (Wall Street Journal, The Economist); to advertising and sponsorships in content (see Fotopedia's "Japan" app); and Payment systems (Square)."
How can businesses harness the power of social media and the millions of users on mobile to generate buzz on Facebook? Woman-owned and Dallas-based tech startup, BestBuzz, has also developed a mobile solution for businesses to leverage advertising on social networks. BestBuzz is filling the gap of connecting brands with new customers by creating a unique "word of mouth" mobile channel between loyal fans and their friends on social media. Local businesses, like Bryan Street Tavern, as well as brands like Cadillac and BeautiControl, have flocked to this new advertising platform. Non-profits also seem to be a fan of the technology platform, and BestBuzz has a long list of social good campaigns that are changing the world by generating buzz between friends for great causes.
Facebook had an exciting week, but what will follow for the social leader post-IPO? The company is obviously thinking beyond advertising by acquiring new mobile commerce startup, Karma. While I believe that Facebook has opportunity for innovation in the mobile arena, Mark Zuckerberg needs to understand that he is now at the mercy of Wall Street analysts who I predict will haunt his dreams before every earnings report as businesses look for ways to diversity their social advertising portfolios.