FACEBOOK: Now a PAID Service

Jyoti is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Facebook (NASDAQ: FB) has been a complimentary service for all merchants and businesses. Many of them have used this free service to perfection by launching different ad campaigns that reached out to the masses. But this service will not be free anymore as Facebook has announced that they will be charging them for service offerings on their site.

We can say that Facebook offered a trial version to its merchants and businesses by initially allowing them to offer services and deals on their website without any cost. Many merchants made full use of this service and used the enormous database of Facebook to cry out loud with some excellent offers. Few made a lot of profits as well, like the ARIA, a resort and casino in Las Vegas, which saw more than 1500 room nights booked after offering a deal through the social network. Another example has been the multiplex – Cinemax which in combination with ICICI Bank and Facebook offered users almost 40% off on tickets. The response was very good, showing its presence, in and around the world.

This trial phase is now closed as per different sources. Any merchants with fan likes of more than 400 will be the first ones to be targeted. They will be charged with a nominal price of around $5 (expected), which could vary based on the number of users. This was quite essential from their end because Wall Street is continuously questioning on the continuity of its revenue model.  Everyone is suspecting its revenue generation capability for a longer run and its ability to join hands with different brands to create revenue which can sustain for a longer duration.

The revenue from ads did jump up to 28% since the last quarter but still did not meet the expectations of the investors. The major problem is the fierce competition it is receiving in the display ad revenue. Facebook despite its humongous data base lags behind its biggest competitor Google (NASDAQ: GOOG).  The other fierce competitors are Yahoo! Inc. (NASDAQ: YHOO) and Microsoft (NASDAQ: MSFT).

Google has not used ad sales through its social networking platform Google+, but it’s been primarily through its search engine where it is known to be the CZAR, with a market share of more than 66%. Google has also been very aggressive on this front which is visible with its different acquisitions like AdMob and DoubleClick. Google has already overtaken Facebook in terms of display ad where its revenue is expected to touch as high as $2.31 billion dollars (as per the latest report from EMarketer).

Yahoo! has lost its way in the past couple of years. It used to dominate at a time when the online world was at its nascent stage. Since the inception of social networking arena, especially Facebook, it has been losing the battle and is currently standing at the third place with a market share of around 9 percent in display ad revenue. Most of the analysts are predicting that Yahoo might grow in terms of revenue in the digital ads in the coming years but will continue losing the market share to Google and Facebook.

Microsoft is slowly creeping into this online ad revenue and is expected to improve numbers as the days pass by. They have been marketing aggressively against Google in order to promote their online search engine BING. They had even launched a one-to-one ad campaign against Google called BING IT ON!  If they are able to give Google a good run for its money in the search engine, then a lot of revenue from display ads might gradually shift from Google to Microsoft.

Conclusion

Facebook has not used its ability to generate revenues through ads and f-commerce because of its free services offered to most of the retailers and other businesses. Looking at the initial success that these companies have received during the free offering, they would not mind shelling out a few extra cents from their pocket in order to capture the potential database of Facebook. This will generate a lot of hope to the investors in the abilities of Facebook to generate a long and sustaining revenue model.

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jyotiadvisor has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook, Google, and Microsoft and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend 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.

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