As long as Facebook remains privately held, its finances -- and the role advertising plays in them -- will stay shrouded in mystery. But if you sift through the tiny amounts of information that do emerge from the company, the picture you get is of a company going through an awkward adolescence: It seems to be successful, in spite of its glaring flaws.
At a March conference hosted by Deutsche Bank, executives from ad agency networks WPP (WPPGY), Omnicom (OMC), Interpublic (IPG) and MDC Partners (MDCA) complained that Facebook was -- like any 16-year-old -- difficult to deal with. DB analyst Matt Chesler wrote:
While there was a general consensus among the panelists about the importance of integrating social media into marketing plans, there was also a lot said about how working with Facebook felt like the early days of working with Google in terms of helpfulness and responsiveness. In addition, the perception about Facebook's effectiveness as a marketing tool varies greatly depending on its use. Facebook is seen as a great platform for PR and CRM [customer relatonship management], but experiences were mixed when it came to ads.Facebook's ad sales people probably aren't losing too much sleep -- it managed to extract a 40 percent price rise on some inventory this year. That's not the only good news about Facebook's ad revenue, which is allegedly 60 percent of the company's sales. Advertising on the site is estimated to reach $4 billion this year.
This is where the criticism comes in:
- Not everyone wants to use Facebook as a utility like email or search. That actually limits its appeal to clients.
- There are consistent reports that ads on Facebook perform poorly.
- Although nearly one third of Facebook's traffic comes from mobile users, the company has not sold any mobile ads. (I've argued previously that it can't sell ads there unless it reaches a deal with both Google and Apple).