Finally! Facebook Discovers The Secret Path
Saif 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 trying, for quite some time, to find out all possible ways of generating additional revenue sources. Investors do not see any growth in their revenue generation capability and are skeptical about the company’s future. This, along with its overpriced IPO listing has led to share price losses of 30-35 percent.
Facebook has taken the social networking world to a different level. They have seen the highest growth rate and have outsmarted its peers by a huge margin. The recent downfall is attributed more towards its ability to improve further. After its IPO listing revenue figures are now being witnessed by the eyes of the common individual along with investors – this is one of the big problems that they are facing. The other problem has been the shift of the user base from web based application on desktop to its mobile platform. They have not been able to monetize the mobile platform to its full potential. But they have finally discovered the path of Glory!
What’s This Secret Path?
The constant pressure from investors and prominent efforts from its marketing team has led them to discover certain new ways of generating revenue by using their existing database.
Mobile platform: The number of users shifting to mobile applications is increasing day by day attributed to the growth of technology in Tablets and Smartphones. The chart below depicts the dominance of Facebook, even in this platform:
*Data Source ComScore
This is positive news for the company because as per the sources, the sponsored stories in the mobile news feed carry CPM’s (cost per 1000 impressions) roughly 40X the corporate average. Also Mark Zuckerberg revealed that mobile users generate more revenue than desktop users for the same amount of time spent visiting the website.
Currently they are generating only $70 million a year from mobile as compared to Twitter, with one-third (almost) the numbers in terms of users, it is generating $140 million a year from its mobile application. This can also be attributed to the fact that Twitter started as a mobile company and understands the nitty-gritty of the mobile platform. When Facebook is able to transform completely, from its desktop application to its mobile application, then the growth in the revenue is inevitable.
Also, as per TGB digital, a marketing company (dealing with the likes of Procter and Gamble, Ford Motor Company, etc.), the ROI (Return on Investments) is higher for these companies when targeting Facebook users as compared to the other segments of the market. This makes monetization of mobile platform even more lucrative for Facebook. Facebook is heavily dependent on its ad revenue (as it is around 80% of its total revenue). They had been a bit conservative in displaying mobile ads through news feeds, which is on course for a change.
Google (NASDAQ: GOOG) on the other hand is dominating the display ads war. They are expected to have the highest market share of 15.4% (as per ComScore) by the end of the year, a touch higher than Facebook. YouTube has already started the Interactive Video Ads which gives advertisers the opportunity to display their ads while the system is loading the application. The only thing is that their social networking platform Google+ is not growing as per their expectations, a market which can boost their incomes to an enormous extent.
Potential E-commerce: The first step towards e-commerce has been initiated by Facebook, as they are launching the platform to buy and send real gifts worth as much as hundreds of dollars. This is in partnership with Starbucks, 1-800-Flowers, Gund, and New York City-based Magnolia Bakery. The best part is that the user, who is receiving the gift, can not only take a preview of the gift, but also amend it as per her requirements or even exchange it for something of her choice within the same amount. The only thing is that sending a gift is only available for another Facebook friend and not a non-Facebook user (just for a fact – 1 out of 7 people in the entire world are on Facebook).
The only two things that they need to really look into it while stepping into e-commerce are : 1) Quality of gifts – As the revenue will be shared between its partner, thus they need to make sure that they strike a balance between the best possible deal without hampering its quality. 2) Privacy Concerns: They need to convince users that sharing details of their Credit/Debit card on a Social platform is totally secured just like any other online transaction.
Once Facebook attains these objectives and is able to monetize the mobile platform they will back on track. This is because the mobile platform is expected to grow for the coming few years and is currently the sweet spot for all the investors. Facebook’s marketing team needs to convince the brands and the other big corporate that they can reach out to their desired set of masses by using their platform. They had also offered a free trial version for companies to create their own user page and offer some exciting deals. But this might change as they are planning to charge these corporate some nominal amount for listing their offers on Facebook which makes a lot of sense. If they keep innovating newer sources of revenue generation and improve their customer experience, then they are surely in for a long term.
Dig Deeper
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Saifnu has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google 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.
