In the days leading up to its now spectacular failure of an IPO, Facebook was forced to restate sales estimates that lowered projections for mobile revenue. On top of that came the news that GM was pulling its advertising from Facebook, calling them "ineffective."
Not a great way to go public. What should have been a great day for Mark Zuckerberg is turning into a PR and legal nightmare as lawsuits pile up and the government launches investigations.
All of this reflects what is becoming a really obvious problem for Facebook: it has the desktop (including both desktop and laptop users) sewn up, but it has no idea how to monetize or make money off mobility, and that's where the growth is.
It's estimated half of all of Facebook's just under 1 billion users are accessing it through a mobile device. That's almost a half billion pairs of eyeballs that don't see ads, and Facebook derives 82 percent of its revenue comes from ads, according to the prospectus filed for the IPO.
And mobile is growing. comScore's most recent Mobile Metrix 2.0 report showed U.S. smartphone users spent 441 minutes per month on Facebook in March compared with 391 minutes for people on PCs. The people using PCs at least saw some ads. Those on mobile saw nothing.
All of which is remarkable, because the mobile apps for Facebook are, to put it diplomatically, lousy. They are clumsy, inelegant and lack basic functionality. And yet people seem to prefer them, notes Greg Sterling, founding principal of Sterling Market Intelligence (SMI).
"My own belief is people are also using the mobile apps because they are less cluttered. They may not be elegant experiences but they are less cluttered than the PC version, and whether it's conscious or unconscious, people ignore the ads. They just focus on a specific experience and ignore the clutter," he said.
Facebook is also failing to monetize other opportunities. A report from UK researcher Strand Group found that Facebook has become the popular alternative to SMS text messaging, which has a limit on uses before fees kick in. So an increasing number of people are using Facebook chat, or Apple's iMessage on the iPhone, to circumvent the telcos, depriving them of a major source of revenue.
But that genie is out of the bottle and no way could Facebook start to monetize it now, said Sterling. "If people had to start paying them that would create a lot of friction and you would see a lot of drop off. Given that it was free to begin with, it would be very hard to impose a fee on people now," he said.
Facebook certainly can put up a bunch of banner ads right away for its mobile site, which is what most mobile developers do to monetize their site. However they need to be very careful about doing that, because if they start throwing a lot of ads at people, they will be less inclined to use the site, warns Sterling.
Right now, Sterling believes Facebook is leaving a lot of money on the table. "I expect them to build an adSense-like network," he said, in reference to Google's own advertising network. "People are targeted when they sign in. I think they will be compelled to do some of these things. All these sites are using Facebook Connect to sign in. Why wouldn't they leverage that?"
In light of Yahoo's new web browser, he wonders why doesn't Facebook make its own, again to monetize use. There's also potential around Facebook Credit, such as loyalty points in the offline world. "Some businesses give Facebook Credits you can use online. That's an interesting online-offline connection to Credits. If they can develop that further that could bring in revenue as well," he said.
Facebook also needs a better search engine because its current one is awful. There were rumors of Microsoft trading Bing to Facebook in return for more shares after the IPO. Nothing came of the rumors and Microsoft is probably glad at this point.
But Facebook still needs a search engine and it probably has to buy one now, said Sterling. "It would be better for them to spend a billion dollars on Bing than on Instagram. They could do a lot more with it. But I don't know at this point. It would be really hard for them to build from the ground up a really competent search network," he said.
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