I know what you’re thinking, “With a title like that, this guy is just trying to earn brownie points with the CEO.” First of all, that’s never a bad idea but, more importantly, it’s a legitimate question that asked myself when Facebook announced that they will be launching promoted posts for users.
I’ll fill you in on what my boss suggested later but let’s first answer the question, “What are promoted posts for users?” In order to do so, I’ll explain promoted posts in general. Advertisers, including clients of Wpromote, have been taking advantage of promoted posts in order to get their messages in front of more of their customers. Facebook uses an algorithm to decide who sees what. Chances are good that even if you follow someone or some company, you might not see every single thing that they post. By promoting a post, advertisers are able to keep announcements of their new products, promotions, and events higher in the news feeds of their customers for a longer duration. It’s a way of circumventing the algorithm… for a fee, of course.
Promoted posts for advertisers have been pretty successful for our clients and they make some much needed revenue for Facebook. This gave someone at Facebook a brilliant idea: “Hey, there are thousands of advertisers but we have one billion users! Maybe they’ll want to promote posts too.” Promoted posts will cost users $7 to make sure that their status updates gets much more play among the people who follow them. When implemented, in addition to being more likely to see posts from companies, you’ll see specific updates from your friends, colleagues, and that dude you knew in high school who won’t shut up about his new puppy.
This could mean trouble
Let me be upfront about my opinion on this development: I think that it is a very bad idea. Especially since the IPO and subsequent drop in the value of the stock, Facebook executives have been scrambling to come up with ways to generate more revenue. They have tried so many different ad schemes that advertisers have criticized them for making things too confusing. There are promoted posts, sponsored stories, search ads, display ads, mobile ads, and more. It has been difficult to keep track of what’s new, what’s no longer available, and what’s going to generate the best return on investment. Now, advertisers that are already having a tough time getting production from Facebook’s various advertising options are facing the prospect of competing against a billion people for the same limited space.
The expansion of ads within the Facebook interface has also been intrusive to the user experience. I don’t mean to date myself, but back in my day, Facebook didn’t have any ads. I know that seems ridiculous but it’s true. Now, there are ads along the side, ads in your feed, ads in the search bar, ads on your phone, and ads hidden in places I’ve probably yet to discover. This hasn’t caused people to abandon Facebook but it’s likely a contributing factor behind the decline in time that users are spending on the site.
The problem with the extension of promoted posts to users is that if it’s a big success, it will wreck the Facebook user experience. Facebook will go from a place where you catch up with your friends to a place where you are bombarded primarily with messages that people paid to promote. I don’t mean to suggest that promoted posts are all bad but if the balance of your news feed shifts from items that the algorithm has determined you a likely to enjoy to items that have to circumvent the algorithm, then, by definition, you are probably less likely to enjoy your experience.
If promoted posts for users is a failure, then it won’t help Facebook to make money and they’ll have to find some other way to increase revenue.
So what did your boss say already?!
This leads me back to the title of this post, “Why won’t Facebook listen to my boss?” Almost two years ago, Michael Mothner, Wpromote’s CEO, wrote a blog post called “Why Facebook will be the next $100 Billion company. And how it gets there.” The title is a little verbose for my taste but the article is definitely worth a read. Essentially, Mothner suggested that Facebook should compete with the Google Display Network for ad real estate on the millions of sites on the Internet outside of Facebook.com.
Google is great at knowing where you are on the Internet and matching ads accordingly but Facebook knows who you are which is a very powerful advertising tool. Google might show me an ad for sporting goods while I’m reading an article about basketball but Facebook knows that I love the Lakers. Whereas merchants using Google have to advertise based on the context of the article, merchants using a hypothetical Facebook display ad could show me an ad for a Kobe Bryant jersey or a Steve Nash poster. Even if you don’t agree that this is a better way to advertise, you have to admit that it’s a powerful alternative to the Google Display Network. Furthermore, it has the added benefit of giving Facebook a reliable, scalable, sustainable revenue stream that doesn’t negatively affect the the user experience on Facebook.com.
Why Facebook hasn’t rolled this out yet, I do not understand.
The bottom line
At the time of this post, the following statistics are accurate according to Yahoo Finance:
- Google’s stock is valued at 5.04 times its revenue
- Apple’s stock is valued at about 4.01 times its revenue
- Amazon’s stock is valued at about 2.08 times its revenue
- Facebook’s stock is valued at about 8.68 times its revenue
I’m not a economist or a stock broker and I know that this is an oversimplification but it seems pretty obvious that either Facebook’s stock is overvalued–even after falling to ~$21/share from its IPO of $38–or Facebook needs to increase its revenue pronto! By most accounts, Facebook’s revenue is predicted to grow but if revenue growth doesn’t come from a reliable, scalable, sustainable source that keeps the user experience on Facebook.com intact, that growth is going to be very difficult to achieve and maintain in the long run. As such, diving into display advertising outside of Facebook.com seems like a sensible thing to do as it satisfies the reliability/scalability/sustainability test without affecting the user experience. I’m not suggesting that it would be a panacea that would fix all that ails Facebook but it would certainly be a step in the right direction.
So, if I had to give Facebook one piece of advice, it would be this: listen to my boss! He’s got some really good ideas and he’s pretty easy on the eyes too.
You can never have too many brownie points!