On Friday, Facebook went public in a highly anticipated initial public offering (IPO) that valued the company at more than $100 billion. Although the initial price of stock cost $38 a share, Facebook stock plunged to $34.26 as of Monday afternoon, which is 10 percent below IPO price. Up against a falling stock market, many investors are questioning whether Facebook will be able to attract enough advertising revenue to justify this huge public offering. Although Facebook is an unparalleled means of branding and engaging consumers in a business or product, many are skeptical over whether it has the same power and success when it comes to advertising. Since Facebook makes most of its money from online ads, the future of its advertising revenue will have a huge impact on whether investors will benefit from buying stock.
One of the main reasons for concern is that General Motors Co. recently announced that they are ceasing all Facebook advertising efforts, pulling a $10 million advertising campaign from the overall $40 million the company spends on its Facebook presence. The company decided that paid advertisements on Facebook had little impact on consumers’ car purchases. This raises the question that if GM, one of the largest advertisers in the United States, has come out publicly denouncing the effectiveness of Facebook advertising, will others be quick to follow?
Facebook is able to insert ads into users’ news feeds and Timelines without excessive intrusion or annoyance on the users’ part. There are no large, overbearing ads that pop up. When a user does click on an ad, they will either be sent to the business’ fan page, in hopes that they will “like” them, or to a custom landing page or website.
What make these ads so unique are Facebook’s effective targeting capabilities. Facebook advertisers can specifically target users based on what interests they have listed, their location, demographic, gender and age group. For example, an advertiser may choose to specifically target men between the ages of 18 and 35 who live in a particular location and who like cars. However, skeptics are still unsure of the value in all of this since, as with other social media advertising venues, Return on Investment (ROI) is not always easy to measure. It’s almost impossible to measure the value of a “like,” “comment” or “share” in terms of dollars.
Even though GM has shut down their Facebook advertising budget, the company is still dedicated to building their fan pages as an important means of engaging car buyers. Many companies share this sentiment that Facebook is an excellent way to connect with customers and generate brand awareness and loyalty. Major corporations such as Target and Walmart use Facebook mainly for this purpose, rather than creating targeted ads to solely drive sales. Facebook has been able to connect people and businesses and share content more effectively than any other online medium and having a strong presence on the site can help any business in the long run. For this reason, if your intention is to increase brand awareness and loyalty, running ads on Facebook that will lead targeted users to your fan page can be beneficial for you. Since Facebook is essentially a social network, we recommend it for industries and products that are likely to be shared with users amongst friends. For example, restaurants, entertainment businesses and political organizations are likely to find success through marketing on Facebook.
It’s important to consider that if businesses start to follow GM’s lead in pulling out of expensive advertising campaigns to focus on their fan pages (a free service), Facebook will need to find another way to generate revenue to support the I.P.O. Currently, business can market themselves through Facebook fan pages by sharing content, posting information about new products and offering special deals all at no cost. If enough companies pull out of Facebook advertising campaigns, the largest social networking site may have to limit what businesses can do to market themselves for free.
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