In one of the most highly-anticipated floatations of all time, Facebook has finally announced pricing of its shares at $38 per share, valuing the company at $104bn - making it one of the highest ever valued IPOs.
But doubts continue to be raised regarding the network's advertising programmes and its ability to generate long-term profit, escalated by its decision just days before the IPO to sell 25% more shares than originally stated.
So how will its valuation on the stock market affect brands and retailers?
Richard Britton, MD of CloudSense, says the flotation is a big step for the world of social commerce – according to a recent survey from SocialMediadd, F-commerce is set to be a $30 billion industry by 2015.
“However, whilst much of the recent discussion on the IPO has focused on the need for Facebook to monetise the site, what has been overlooked is that the majority of businesses don’t currently understand how to take advantage of its commercial potential,” he says.
“The problem lies in the fact that most businesses are not capable of capturing the wealth of information and interactions that take place on the site.”
Just this week, new research revealed Facebook’s advertising platform is providing less than effective benefits for marketers. Greenlight’s Search & Social Survey showed 44% of users would ‘never’ click on Facebook sponsored ads; although the study also showed retailers tend to experience higher click-through rates than any other sector.
Perhaps a greater indication of Facebook’s failing advertising program was the recent news that General Motors (GM) intends to cut its $10m Facebook advertising budget. GM’s global CMO Joel Ewanick told the Wall Street Journal the company “is definitely reassessing our advertising on Facebook, although the content is effective and important.” Ewanick claimed paid advertising on the network was ineffective, and so GM would instead be utilising Facebook’s free content on the site – such as brand pages – to promote the company.
Further criticism came this week from Forrester analyst Nate Elliot, who claimed the network, despite its continuous attempts to change its advertising model, is getting worse at helping marketers succeed: “Marketing on Facebook doesn’t work very well, and marketers can’t count on things improving anytime soon.”
Questions have also been raised regarding the network’s IPO valuation. Ahead of the flotation, an infographic from Webtrends showed that if Facebook sells one ad for each of its 500 million daily active users per day, at $0.02 apiece, every day for an entire year, it will generate $3.6 billion in revenue.
Click to enlarge.
But following the IPO, should brands and marketers expect to see further changes to its advertising strategy as Facebook attempts to monetise its 900 million users, driving extra promotions and extra advertising on the social network?
Tech columnist Farhad Manjoo says to justify its $100 billion valuation, investors are going to expect significant growth in its revenues – produced by further exposing users to advertisers for more money.
He explains: “Like urban graffiti, the ads will show up with greater frequency in your feed and on your phone. Then they’ll begin to put them in parts of the site you didn’t even know existed. Not long ago Facebook began selling the “logout page,” the screen you see when you’re done with the site, for $700,000 a day. (I just logged out and saw a big ad for Samsung.) What other such unexploited places will come next?”
Previous attempts to implement changes to the site, including extra promotions and advertising, have been met with resistance. Its decision to make Timeline compulsory resulted in a backlash from users and the creation of multiple anti-timeline Facebook groups.
As fears mount over increased advertising intrusion, the 2012 Digital Advertising Attitudes Report from Upstream showed that British and American consumers are warning of a similar reaction. More than one in four (27%) British and one in five (20%) American consumers online would stop using a product or service – such as the social networking site – if they were subjected to too much advertising.
And whilst Facebook continues to ramp up its mobile operations, it may be met with greater criticism. According to the report, consumer openness to advertising is lowest on mobile phones versus any other device such as PC, laptop or tablet.
Socialbakers' CEO Jan Rezab says that under pressure to monetise the site, Facebook must be careful not to put off its most valuable asset: users.
He says: “To successfully make money, Facebook must ensure brands that use its platform are posting content that is engaging – encouraging users to ‘Like’, comment or share it. It is this, not old fashioned intrusive banner-style ads that will create the most value for brands, users and ultimately Facebook itself.”
But Justin Kistner, director of social products at Webtrends, believes Facebook still has a lot of trump cards left to play and a number of opportunities for brands and advertisers to take advantage of.
He says: “Facebook is the best positioned to offer the first browser-level mobile development platform. In fact, Facebook just announced it. It’s called the App Center [and] lets you install apps on Facebook’s mobile site. Facebook’s investment in Instagram and Glancee further demonstrates its dedication to winning in mobile.
How do you think the Facebook IPO will affect brands and advertising?