This is How Facebook Can Redeem Itself
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook Search Potential—outside of Facebook
I believe an untapped potential that Facebook (NASDAQ: FB) is just entering is the “search” arena. People on Facebook, just like anywhere else, search for things. But what they are looking for may not be on Facebook. Presently it places social ads in front of users even when they are not interested in buying. So what if Facebook users really do want to buy?
Searching on Facebook Mentality
When people on Facebook search for something it is usually something very specific, not general. Usually when people go to a search engine like Bing, Google, or Yahoo! they will type something general and browse to shop for what they want. So would a display ad on Facebook be good? The whole idea of being “search specific” seems to bypass the “display ad” concept. Unless a search can assist potential buyers more, I do not see how a general display ad will do any good.
Well, according to Andrew Lipsman at Comscore, Facebook is already doing 1.6 billion web-based searches a month.
- That's 3-times as many as AOL (NYSE: AOL).
- It's one-fifth as many as Yahoo! (with no effort whatsoever).
- Yes, it's only 1/100th as many as Google (NASDAQ: GOOG) but, again, Facebook is generating those queries with no effort whatsoever.
When I describe the searches by Facebook as being “effortless” compared to AOL and Google, what I mean is that members of Facebook “live” on the sight and it is usually open. They usually don’t have to go there, whereas AOL and Google have people going to that sight for a search. Since people are on Facebook the search is an effortless occurrence for the company. The potential for a “natural search” based upon being on an open sight is incredible. There is no effort to open a sight to do a search like AOL and Goggle.
So let's assume that Facebook could go do a search deal with Google that paid it as much as AOL gets paid per search. This would allow it to instantly generate close to~$1 billion of annual search revenue tomorrow. Back in 2010 AOL’s search agreement with Google generated—for first six months of the year—advertising revenue associated with Google, about $209 million. Multiply that by 3 and one can imagine what Facebook could be generating now.
Making Money on Mobile Devices
Facebook has a very small revenue stream from mobile ads and a dilemma exists on how to make these ads affective. It’s not like one can translate larger ads from a computer screen to a small mobile screen first and secondly mobile means—well mobile. People are not stationary and are not keen on the idea of being interrupted by some ad when they are surfing for something while doing something else. It seems simple display ads would irritate users. So how can Facebook advertise to mobile customers without repelling them with unwanted and inconvenient display ads? Chris Cunningham, cofounder and CEO of appssavvy, describes how ads need to be displayed during “in between times” like we have on television. As an example he says:
“Display today and how the ad networks are selling it (is the wrong way). We have to go back to big, beautiful ads. People are scared to interact with ads because they might be taken away. There are natural breaks in television, and you know it’s going to come. You can find natural breaks in mobile too–such as between levels of a game."
Companies like P.F. Chang have had great success using Twitter. They can be in the form of a large, beautiful ad. Other examples might be when a user is uploading a picture. There are plenty of down times that a blank screen can be replaced with an ad.
I believe Facebook can redeem itself in the face of investors if it can tap into the search and mobile ad markets. Mobile will be the big ticket of the future for Facebook. One of the key points that need to be brought out here is Facebook’s “culture” that is 500 million strong in developing societies. Even though Facebook has well over 850 million users, not all would be considered viable ‘buying cultures.” People live there daily. There is a big difference between jumping on a search engine to find something and remaining on a sight after a search. This is the difference and the advantage of Facebook. Help the “culture” find everything!
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