Facebook just launched their initial public stock offering (IPO) and it is a bad stock to buy. The company is priced at its ceiling from the start. Here is an article from the Wall Street Journal talking about how even on opening day, the stock is struggling to maintain its stock price
A story ran last week on NPR quoting some investors by saying, “I missed out on Apple, I don’t want to miss out on this.’ The problem with that thinking is those are two completely different situations… Apple was a new cutting edge technology company. Facebook is a social network that has been around for a while and who doesn’t have ground breaking technology or even an ad model that works, which is how they are supposed to be generating revenue. I recently read an article by Mitch Joel explaining what the frustration is with advertising with Facebook. In his article, Mitch talks about GM pulling all of their $10 million Ad budget from Facebook simply because there was no return on their ad spend.
If you look at Facebook’s ad model, it’s really just selling banner ads which 90% of the time are either ignored or a waste of money (this goes for banners on Facebook or any other media placement) the one thing Facebook does have going in their favor is they have community. Advertising on Facebook is not advertising per-se, its building up your community and creating awareness and brand loyalty. That leads me to their potential.
For Facebook to truly succeed, they should take a page from their competitor Google+. Google has a much smaller community BUT posts on G+ are indexed by search engines. That means that all that time and effort by marketing teams spent building up their community is not wasted for only their fans…that content becomes apart of the web. It’s linkable content that can e accessed by their fans and by people who don’t know about them already or people who aren’t yet fans can stumble across all the content that is being created. Here is an article from the Business Insider highlighting how Google’s ad model is out performing Facebook’s by a large margin.
If Facebook were to make this change their Ad model could change to replicate something a little more similar to Google’s textual ads and actual drive some revenue which could possibly increasing the companies valuation. If not, their stock prices and eventually the company are in for a long and bumpy ride.