Light at the End of the Tunnel For Facebook?
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was an interesting week, that one, for CEO Mark Zuckerberg. He took his company public and he also got married immediately after. After the Facebook IPO, I’m sure he was filled with hopes for his company, but investors apparently didn’t share the same optimism as the Harvard drop out.
When Facebook (NASDAQ: FB) initially went public, everyone ranging from 16 year old hipsters to 32 year old investment bankers couldn’t help but hide their curiosity regarding the Social Networking site’s move. It was the first of its kind, a social networking site going public. Most people seemed to have been under the impression that with the large stock of data that Facebook has of its users, it would only be a matter of time before they found a way to monetize this surely valuable stock of data that they possess.
Yet, there wasn’t at that point of time, any way for Facebook to monetize this bit of data without either violating privacy or without annoying users by overbearing them with ads. And this showed in the stock market. The price of shares of the company that runs the service with #1 Alexa ranking, dipped. The shares at the time of the IPO was valued at $38 per share, giving the company a valuation of $104 billion, the largest of any company going public for the first time.
Since then the stock for the company has tumbled by 40% mainly thanks to the issues mentioned above, regarding long term revenue growth and stability. Wait, but that doesn’t explain a recent rise in the stock price of the social networking giant. Obviously not. The rise in the stock price in the recent past for Zuckerberg’s pet has mainly been thanks to a number of catalysts including a brand new advertising platform called – The Facebook Exchange (FBX).
For those who are wondering, it isn’t a stock exchange. It’s a cookie based real-time bidding retargeted ads program. In plain speak, that basically means that the Facebook Exchange ads for a particular company are more likely to display itself to a user who has visited that company’s website. It basically looks at your browsing history and creates specific ads targeted to your recent searches, not just the things you “like” on Facebook.
"Facebook Exchange allows marketers to use their own real-time consumer insight data to reach an audience on Facebook," said Scott Shapiro, product marketing manager at Facebook, in a recent blog posting.
So that means for example, if you’re looking at shoes on a particular e-store, and check them out, but don’t end up buying, you’re very likely to see an ad for the exact same pair of shoes from the same retailer when you land up on your Facebook page next. This is an excellent strategy. Naturally, if you’ve checked out a particular pair of shoes on a site, it means you’re already interested in it and there’s a higher chance of conversion. This means that retargeted ads on Facebook could be charged at a higher rate than standard ads.
Retargeting has been around for a while and is being used by behemoths including Google (NASDAQ: GOOG). In fact, Google initially launched their retargeted ads to a handful of advertisers as early as March 2009 and called it remarketing! However, this sort of advertising platform is new to Facebook which launched ads primarily based on biographical information and a user interactions with a particular brand on the site.
The Facebook Exchange is out of the beta stage and has garnered some rave reviews by partners who have been testing on the platform. AdRoll, said that its clients saw a 16x return on investment thanks to Facebook exchange. TellAparts clients saw a click through rate of 6.65% on Facebook Exchange Ads as opposed to 6.41% on Google’s AdX.
This could all be good news for the company, but it will need to test the Facebook Exchange out across hundreds of verticals before companies take to it in droves and up until then it’s unlikely that Google or any other players in the market will be looking over their shoulder.
In the short terms, Facebook received a shot in the arm thanks to Salesforce.com CEO Mark Benioff’s comments about the impact of the social networking site on the entire marketing industry.
Another positive is the fact that Apple’s (NASDAQ: AAPL) new operating system iOS6, offers greater integration with the Facebook deepening the content that users post on to the site.
With the iOS 6, users can post statuses directly from the Notification Center and can post to Facebook directly from apps including Photos and Safari. Siri is also integrated with Facebook giving you the option of updating statuses using just voice commands. The app store and iTunes gives you access to the “like” feature directly. This means that there’s a Facebook share button everywhere possible on iOS, just like Twitter got with iOS 5. But considering social networking sites largely seem to think their money is in mobile, this will seem like an excellent integration to have.
Clearly though, the social networking giant faces a lot of challenges if it is to prove to investors that it can challenge long terms and provide a stable source of revenues as well. Among the challenges are how can the company make more through mobile ads? How do they provide an ad service to customer’s that can compete with Google, for example? The hope among many insiders in the company is that the Facebook Exchange will let them take the first few steps in that direction.
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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.