By Jeremy Victor on February 15th, 2012 | 188156 comments on this postHow+%2466+dollars+could+double+Facebook%26%23039%3Bs+advertising+revenue2012-02-15+13%3A08%3A10Jeremy+Victorhttp%3A%2F%2Fsmartblogs.com%2Fsocialmedia%2F%3Fp%3D18815
This poll analysis was written by Jeremy Victor, president of Make Good Media and editor-in-chief of B2Bbloggers.com. For more of his writing, visit B2Bbloggers.com and follow him on Twitter and Google+.
SmartPulse — our weekly nonscientific reader poll in SmartBrief on Social Media — tracks feedback from leading marketers about social media practices and issues.
As Wall Street and Silicon Valley foamed at the mouth waiting for news of Facebook’s initial public offering filing a couple weeks ago (and I got annoyed), most of the anticipation centered on Facebook’s future market valuation. How much revenue is it generating? How much profit? And should that justify the speculated $100 billion valuation?
With some of those questions answered in the S1 filing, we thought this week we’d ask, Do you worry that Facebook will start charging brands for Facebook pages after its IPO? The results:
- Yes: 59.26%
- No: 40.74%
Before I get into how $66 could double Facebook’s advertising revenue, let me share with you some context and the reason I think it is entirely appropriate to worry (or not). First, in the S1 filing, we learn that Facebook’s advertising revenue grew a staggering 69% in 2011 to $3.15 billion, which is about 85% of their total revenue ($3.7 billion). From the S1 we also learn:
- Our advertising revenue is generated by displaying ad products on our website. Advertisers pay for ad products displayed on Facebook based on the number of impressions delivered or the number of clicks made by our users.
- We enable advertisers to engage with more than 800 million monthly active users (MAUs) on Facebook or subsets of our users based on information they have chosen to share with us such as their age, location, gender, or interests.
So to date, the advertising revenue is coming from display ad products. Nothing new, right? Peter Kafka, of All ThingsD, labels it a mystery as to how it all works. But E.B. Boyd of Fast Company shares that the success is based on the targeting, not mass reach. Either way, it is almost a certainty that the display ad business is really just the tip of the iceberg from an advertising revenue perspective.
Consider these additional excerpts from the S1.
More than 4 million businesses have Pages on Facebook that they use to have a dialogue with their customers. We expect this trend to grow as well.
How We Create Value for Advertisers and Marketers — When a Facebook user Likes a Page, the Page owner has the opportunity to publish stories to the user’s News Feed on an ongoing basis. We believe that this ongoing connection provides a significant advantage for Facebook Pages as compared to traditional business websites. We do not charge businesses for their Pages, nor do we charge for the resulting organic distribution. (Emphasis added by me.)
Let’s address two significant points from the above. First, critical mass was reached a long time ago; 4 million businesses have Facebook Pages. Put that another way, Facebook has 4 million nonpaying business customers who are benefiting from the connection to the network. That’s an incredible stat. How many other businesses on the planet can say that? If they decided to start charging tomorrow and they lost ¾ of those businesses, they would be just fine.
Second, in the next excerpt, is the fact that they acknowledge not charging for the Pages nor the additional distribution that comes through the individuals who “Like” each Page. Why would they mention that? Because it highlights two areas where they eventually could charge their customers. Just imagine what would happen to their revenue (and profit) if they did.
Ok, let’s do that. Suppose Facebook charges a mere $66 a month for a Facebook Page. At that rate, each customer would pay $792 a year. Multiply that by the 4 million businesses that have Pages and you get more than $3.16 billion a year from Facebook’s existing Page customers –which more than doubles their current advertising revenue. That doesn’t seem like that much of a stretch does it? $66 a month.
Just about every company, regardless of size, can find $66 a month in their advertising budget. And in a worst-case scenario, for the smallest of businesses, eliminating the hosting fees for their own company website could get them half-way there. Remember the note above: This ongoing connection provides a significant advantage for Facebook Pages as compared to traditional business websites.
Now of course this is all speculation on my part; I have no knowledge of what Facebook will do. But at the same time, reading the S1 shows how a few very simple steps could quickly scale both their revenue and profit whenever they decide it’s appropriate, pre- or post-IPO. Oh, and by the way, did I mention, not a single ad is currently served in the Facebook mobile app, which according to data in the S1 is the most downloaded app across all major smartphone platforms. Can you say opportunity?
Should you worry? I wouldn’t. Just plan for the day when someone finally brings you the check for that Facebook free lunch you have been having.
- Are you clueless when it comes to Facebook advertising?
- Are video ads good for Facebook?
- Is it possible to maintain separate personal and professional social media presences?
- Is the social media universe still expanding?
- Would hashtags improve Facebook?