International Digital Marketing

Facebook has a lot to prove. The much hyped Facebook IPO turned to be a fiasco, as the company and bankers evaluated the social network to be worth $100 billion while investors did not. Despite the little peak ($45 share) during the launch on May 18^th 2012,  the Facebook share price has dropped from the opening price of $38 to about $28 this morning.

So, what went wrong?

Too high and optimistic expectations

First of all, let’s look at the numbers. There is an impressive quantity of users in Facebook and the social network has been predicted to reach billion users this year. But does it justify that Facebook was being valued at almost 100 times last year’s profits? This is much higher than tech companies Apple and Google, who in fact make much more money.

In addition to above, in February 2012 Facebook admitted that it did “not currently directly generate any meaningful revenue” from mobile even if more than 425 million monthly active users, representing 50% of the total MAUs, were utilizing its mobile products in December 2011. This has serious implications, which probably were not bypassed by the investors.

What comes to the launch itself, there were too many shares in the market. Also it did not help either that Facebook insiders, such as Facebook board member Peter Thiel, increased the amount of shares they wanted to sell. This raised suspicions – what did they know, that normal public did not?

Is it time to make Facebook users pay?

Facebook has launched a test in New Zealand to see whether it would be possible to make profit also with the users. According to CNET, the social media platform has recently tested out a new service that permits users to make their status updates more prominent in exchange for some money. The new service works like the premium ads to businesses. By paying $1.80 New Zealand dollars ($1.42 U.S. dollars), Facebook users can promote their status update and assure it remains in their friend’s news feed.

If this business model would result successful, Facebook could possibly make a nice profit and gain investors’ trust back. As the user’s friend base, likes, groups, and applications grow, user’s status updates are likely to get lost in the middle of it all. Facebook users also love friends’ “likes” and comments, especially if we are talking about top influencers, and sometimes they have something important to say that is worth highlighting, such as a lost mobile or an item on sale.

On the other hand, the hidden/not seen status updates are mainly caused by Facebook’s own features, issues and sorting algorithm, that sets up the top stories as default and makes everything very cluttered. It highlights stories such as the games people play, music they listen to, apps they use and articles they read – and do not forget to add the brand communications and ads on top. The social media platform has already been pushing its luck, and it is to be seen if this will provoke users to leave the site.

To be honest, I am interested to see how this works out and what users’ reaction will be. How important showing status update is for users? How much are they ready to pay to be “liked”? And if they are ready to pay to be “liked”, are they ready to pay to access the platform in the future? Maybe this is just the first step towards a Facebook membership fee.

With more than 425 million monthly active users utilizing Facebook mobile products in December 2011 only, the social networking platform is finally focusing on mobile and tablets in 2012. Wise decision, since not only Smartphone market is increasing, but according to a research by BI Intelligence global tablet sales will reach 500 million units per year by 2015 – exceeding the number of PCs currently sold per year (~360 million).

Facebook has mentioned that as part of its mobile monetisation strategy it will start using “sponsored stories” in mobile users news feed. But is that really all?

Facebook – more than a simple platform

Until now Facebook has been focusing on normal web strategy and constant updates that seem to make its users’ life more difficult. But hate Facebook or not, the social network is becoming much more than just a platform. Facebook is on its way to become its own Internet portal by using Facebook IDs as an online passport to various products and services hosted on its own developer platform.

Facebook’s inter-connected business model has worked well and the company has created its own successful ecosystem. The social network has made great progress especially with social gaming, and its close relationship with Zynga (FarmVille, Mafia Wars) has been very beneficial for both.  F-commerce is also blooming with companies trying to get more touchable return on their social media investment and Facebook has even launched its own online virtual currency called Facebook credits. They allow Facebook developers to offer in-app purchases with Facebook cutting 30% of the revenue. A similar model Apple uses in its App store.

Facebook mobile monetisation strategy

Now there is the problem. Facebook needs to establish a proper mobile monetisation strategy, yet the native app store model is very restrictive. For example, Apple takes off 30% revenue of the apps sold, and insists on maintaining control of the iOS payments process. This means that Facebook cannot take advantage of ‘in-apps payments’: a revenue generated by its current ecosystem.

What comes to f-commerce, according to a study by Shopatron, most of the tablet owners find shopping with the tablet engaging, and the conversion rate from tablets is much higher than conversion rate from mobiles or even PCs. If Facebook wants to expand its F-commerce business, it needs to offer companies a way to create a tablet optimized social shopping experience, and lure them away from iPad apps.

Will Facebook abandon App store?

Probably not. The social network is not likely to ditch the existing native apps, because they already have a large user base and work well with the different OS. However, Facebook has a team (so called Project Spartan) playing with HTML5 technology, which is a coding language that allows companies to develop one mobile / tablet app that is suitable for any device or operating system. According to a research firm Strategy Analytics, 1 billion HTML5 compatible phones are to be shipped in 2013(up from 336 million in 2011), which brings interesting possibilities.

If the company starts creating its own apps without registration fees and payment restrictions, it is free to monetise via Facebook Credit and in-apps payments. Quite a significant move, since if Facebook starts developing HTML5 apps many companies and its partners are likely to follow. Which certainly will not make Apple happy.

We will see. There are many other possibilities for Facebook in mobile space, such as augmented reality with facial recognition, and the company also needs to consider very well whether it is worth making another powerful enemy, especially when iPad3 is coming up. If Facebook starts competing with Apple’s App store, their relationship status is likely to become “complicated”.