Challenges Mount

When Facebook (FB) went public on May 17, 2012, it sold 421.2 million shares at $38 and raised $16 billion dollars in one of the biggest IPOs ever. Still, questions have continued to surface about how it plans to grow its business. The debate about Facebook’s business strategies has heated up following a Reuters/Ipsos poll  casting doubt on the effectiveness of Facebook advertising for marketers:

Facebook comments, ads don’t sway most users: poll (Reuters) The findings in a recent Reuters/Ipsos online poll give credence to investors’ worries about Facebook’s money-making abilities. Four out of five FB users have never bought a product or service as a result of advertising or comments on the social network site, so investors need convincing that the company has figured out how to translate popularity into a profitable business.

Facebook Lays Out A Clear Business Strategy For Growth

However, Seeking Alpha points out that, in its Form S-1 filing, Facebook has delivered a broad overview of  exactly how it plans to build out its operation into a more profitable and sustainable business, summarized below:

  • 1. Expand the global user community. Internationally there are tremendous opportunities for growth, including: Brazil, Germany, India, Japan, Russia, and South Korea.  China is for now a lost cause, dominated by powerful players such as SINA Corporation’s (SINA) Weibo and RenRen (RENN).
  • 2. Increase engagement. Facebook expects to design more interactive solutions to promote communal engagement. User protest movements against compulsory upgrades have often been a problem, but the goal is to move with utmost care to move people into more interactive environments.
  • 3. Provide a compelling user experience. Facebook intends to optimize its user friendliness to build on its reputation as the inherent leader of social networking experience. This will require the flexibility to respond to competition from whatever becomes “the next big thing.”
  • 4. Improve mobile experiences. Facebook’s need to expand more effectively into the mobile space is often seen as the company’s Achilles’ heel, and establishing dominance in this area is critical as mobile devices are quickly becoming the new portal to online communication. Acquisitions of companies making headwinds into this space will key. It should watch out for competition from Google’s social network, Google+, since, as Google’s Android-based smartphones develop into a market-cornering standard, its ability to effectively integrate mobile with Google+ has increasing potential.
  • 5. Enable developers to build great social products using the Facebook platform. As the dominant medium of social interaction, Facebook’s ability to leverage this advantage requires controlling those who are creating its application content. If the company can present itself as the most ideal platform to develop apps, it will essentially allow for a mini-Internet to exist within the Internet. Users surfing through Facebook’s apps have little reason to venture elsewhere. Yet with an abundance of apps being formed across the mobile space as is, Facebook may be facing an uphill battle in the war to win a user’s precious time and focus.
  • 6. Improve ad products for advertisers and users. Perhaps viewed as the most cautious segment of their growth plan, the need to expand ad products will undoubtedly hinder the enjoyment of user experience. Yet the company does have avenues that may surpass the harm that could be inflicted upon the experience itself. Facebook’s “credits,” used in it applications for instance, appear almost as a knock-off of the old nickel arcade business model. Yet such an artificial economy does little to hinder the experience of the masses itself.

Signs of Movement

Click here to find out more!Facebook is already making moves to improve its mobile marketing strategy. Marketers for the first time can buy mobile ads separately. Brands can now purchase the social context ads within these parameters:

  • mobile news feed only
  • desktop news feed only
  • mobile and desktop news feed
  • mobile and desktop news feed with right-hand ad desktop placement
  • desktop news feed with right-hand ad desktop placement

Selling mobile inventory independently is a significant move for Facebook, opening up ads to businesses that have invested in building mobile apps, and creating opportunities for targeting on-the-go consumers.

More Than Just Display Ads

Facebook’s broad plan for growth acknowledges that its success lies in its ability to provide an enjoyable experience for all its users. And the display ads problem may be overweighted, according to Greg Finn of MarketingLand who believes that Facebook’s future isn’t strictly about display ads, but rather brand participation and interaction. He asserts that having a Facebook page is essential because it makes available options that don’t exist for external site targeting:

“The ‘I don’t click on ads’ argument should soon cease while advertisers will find increased reach and visibility with a natural or word-of-mouth format.”

For example, I highlighted Milkbone’s “It’s Good to Give” campaign, in which a Facebook fan page was an integral part of an integrated campaign strategy that brought in 660 Facebook fans, and resulted in one of their best years ever, with 10% sales growth and 2.4 million new households purchases.

Meanwhile, Facebook’s business plan provides for expansion that aims to increase the user base, ad revenues, and quality of satisfaction. With capital gained from its lucrative IPO, Facebook’s prospect for future growth appears to be very promising.  But it will need to continue to innovate to answer questions about whether the valuation for such growth remains justified.