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Is Facebook Advertising Justifying a Brand's ROI?
Is Facebook Advertising Justifying a Brand's ROI?
By: Sahil Shah

Facebook, the world’s most popular social networking website that has more than 900 million registered users growing is at a very fast pace. Recently backed by an IPO, the billion-dollar valuation company is just reaching those landmarks, which no one ever imagined it would reach. But with this kind of growth, does the social network really justify how much of the valuation that it has recently got?

The answer to this is very debatable and a recent survey that was done on conducted on Reuters and Ipsos Public Affairs poll had some interesting results. It revealed that 80% of Facebook users have never bought a product or service as a result of advertising or comments on the social network site. Point is, that there is still so much to be done by Facebook to turn its 900 million userbase into advertising dollars. But will Facebook be really able to exploit that to its best?

Facebook’s actual money making abilities from its base of 900 million registered users has always been a question and now it is on the radar of the investors as well who are slowly getting to raise doubts and expectations at the same time. A number of reasons can be attributed to why Facebook is not standing up to its expectations (as of now)

IPO & Its After Effects:

The findings of the survey reveal that investors are worried about Facebook's money-making abilities that have pushed the stock down 29% since its initial public offering last month. Thus Facebook’s market value was reduced by $30 billion to roughly $74 billion. About 44% of respondents said the market debut, seen by investors as troubled, has made them less favorable toward Facebook, according to the survey. Also one of the interesting findings was that 46% of survey respondents said the Facebook IPO had made them less favorable towards investing in the stock market in general.

Stickiness of the Network:

The online poll also found that 34% of Facebook users surveyed were spending less time on the website than six months ago, whereas only 20 percent were spending more. This is a clear sign of how the stickiness on the website is reducing as more and more number of people are dropping of the website and being affected by the Facebook Fatigue. Of the 34% spending less time on the social network, their chief reason was that the site was "boring," "not relevant" or "not useful". Privacy concerns ranked third on the list.

Competition Success, Especially Google:

Facebook has not been clearly able to capitalize on how to translate its popularity amongst 900 million registered users into a business that can justify its lofty valuation. On the other hand, Google & Yahoo have made their advertising revenues in a far more convincing manner. Google, the world's No. 1 web search engine, generated roughly $38 billion in revenue previous year compared to Facebook that generated $3.7 billion in revenue. Infact, Google's search ads, which appear alongside the company's search results, are considered among the most effective means of marketing. There are serious doubts on how Facebook will actually maximize its revenue model.

Facebook Advertisers Shying Away:

Recently just before the IPO release there were news about General Motors Co, the third largest advertiser in the United States, stopping paid advertising on Facebook. This created a roar around in the industry and questions were also raised on how Facebook will survive following big setbacks like these. Its not only about General Motors because every other brand is thinking of whether Facebook is getting the kind of ROI that is required and then taking decisions.

Decrease in Levels of Engagement:

Keeping users coming back is crucial for all social media services, said Gartner analyst Ray Valdes."Facebook continuously has the challenge of the novelty factor wearing off, and therefore they have to introduce new kinds of interaction," said Valdes, citing new features such as the "Timeline" interface and the planned $1 billion acquisition of mobile photo-sharing app Instagram. Facebook is trying its best to innovate but the levels of engagement are going low as compared to the number of users online on the social network.

Use of Smartphones:

There is an upsurge on more and more people using smartphones to access Facebook. This has also affected the revenue by a good margin. As facebook offers only limited or no advertising on the mobile version of the site, there are doubts on how will the company make money from mobile users.

These are all the good enough reasons as to why Facebook being at the top is not able to generate the most out of its users. In my viewpoint, Facebook has a still lot to explore to get the ROI for a brand.As Facebook is constantly trying to innovate and experiment with its offerings, it will become an interesting watch to know how Facebook will start making the money, it should from its huge subscriber base.

Do let us know in the comments section below as to what you think on what Facebook should do to face this challenge and overcome it as well.