Since its Initial Public Offering nearly a month ago, Facebook has faced scrutiny over how the launch was handled and has been asked to justify exactly how it is valued at $104 Billion. At the crux of the social network's problem has been how to monetize its nine hundred million worldwide users and the plethora of information that they provide in a way that is valuable to advertisers.
Among the strategies Facebook has rolled out to benefit advertisers, “sponsored stories” seeks to allow companies to leverage relationships on the website to promote their products. Any organization or corporation’s page that a user “likes” can now be displayed on the main news feed page. For example, if I were to like the Kapitall page and Kapitall had purchased advertising on Facebook, than an ad for the company along with a message saying I had liked the page would appear in all my friends’ news feeds.
Facebook believes, and has some evidence to back up the claim, that people will be more inclined to purchase a product if they see their friend endorse it. While this may provide value to advertisers, it does raise privacy issues and could lead to awkward situations in which a user’s like is not necessarily intended to be an endorsement.
Another tool the Menlo Park, California-based company is set to introduce is called Facebook Exchange. This real-time advertising tool will allows companies to bid on the opportunity to insert advertisements into individual users newsfeeds based on their recent internet activity. Facebook will access this data via cookies, which users do have an opportunity to opt out of if they take the time to read the fine print in terms of service.
While Facebook is rolling out these new programs, they are also trying to convince potential advertisers that they are effective. A public relations campaign has been launched to dispel the notion that the website’s advertising is ineffective.
After the 1 month quiet period for the company following the IPO ended on Wednesday, Brad Smallwood, head of measurement and insight at Facebook, was quick to assert, "It's a myth that Facebook advertising doesn't work.” Since General Motors pulled $10 million in advertisements only days before the firm went public, the perception has developed that while the company has as many “customers” as any in the world, it has yet to maximize the financial potential that comes with all those users.
However, internal studies conducted by Facebook show that their advertising may indeed convince customers to purchase certain products more often than they would have without seeing the ad.
Business Section: Investing Ideas
Will the share price for Facebook increase on the back the announcement of these new advertising features? Or will the sloppy handling of the IPO be in the forefront of the minds of market makers.
(Written by Dan Connelly)