By Tusar Barik
With the hype of Facebook’s IPO being announced, many investors are discussing the benefits and threats that come with getting in on the stock. The Internet is packed with stories about why you must buy the stock, why you need to steer clear of it, and everything in-between. As investors are going wild to buy the next hot IPO, many people seem to forget about what helped Facebook make $1 billion in profit last year: advertisers and their agencies. How does the IPO affect these key groups?
The IPO of Facebook should help both groups immensely once the initial craze of owning Facebook dies down. As institutional investors put more pressure on Facebook to grow revenue, advertising will be key. Similar to Google, where advertising accounts for 82% of their revenue, advertising for Facebook accounted for 85% of revenue in 2011. Providing a platform that is advertiser friendly is crucial and will propel growth in the market place. Also, enabling advertisers to target users more effectively will be vitally important. Facebook already has a robust targeting platform, but integration with ad servers and behavioral targeting mechanisms will help to make their platform even more powerful. (Expect complaints and issues from consumer privacy groups when this happens). It is important to note, as with Google, I suspect Facebook will work hard to ensure their advertisements are relevant to users, ultimately putting pressure on agencies to create ads that are both entertaining and useful for the consumer.
For all the positives the IPO will likely have for advertisers and agencies, it is important to note a few key areas to look out for. First, Facebook will not succumb easily to investor pressure. Mark Zuckerberg still has controlling voting interest in the company and holds strong to the mission of “making the world more open and connected” - again reminiscent of Google and its founders’ mission of “organizing the world’s information and [making] it universally accessible and useful.”
However, I view this as a positive as it will ensure Facebook doesn’t get saturated with advertising, but will still provide useful ads to users. Another area for concern is for agencies; Facebook has recently added staff to help increase advertising sales and provide a level of service that media planners are accustomed to when dealing with publishers. As investors pressure Facebook to cut costs and increase profit, the self-service platform will expectedly reduce costs and lead to less agency relationships. Since Google led this initiative, it will likely go over fine with most agencies, but, nonetheless, is something to be wary of.
Overall, the Facebook IPO seems like it will be a good deal for advertisers and agencies. With over 845 million monthly active users, and such a large amount of data to mine on each one of them, it truly provides a platform to connect advertisers to their consumer. As Mark Zuckerberg put it, “We [Facebook[ hope to improve how people connect to businesses and the economy. We [Facebook] think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.” It seems as if Facebook wants to help connect legitimate marketers to their consumer base to create an economy that generates better goods. If executed correctly, this is social media at its finest.
(All data taken from Facebook’s S-1 filed on Feb. 1st, 2012 at http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm)
Tusar Barik is Managing Director of Maiden Media Group, a digital experience agency located in Philadelphia, PA. Prior to Maiden Media, Tusar was a Strategic Account Manager for Mediaplex (a division of ValueClick) and led the Global Dell Computers Digital Advertising account in New York. Tusar has also consulted for companies such as Motorola and WellPoint.
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