A new challenge for Zuckerberg

May 18, 2012

By Kathleen Brooks. The opinions expressed are her own.

Who wouldn’t want to have been an early investor in Facebook? The graffiti artist who spray painted the walls of Facebook HQ decided to take stock rather than a paycheck and will be $150 million dollars richer as a result.

Facebook is one of the biggest ever IPOs in the U.S. and at the end of last week it even managed to knock Greece out of the headlines and was credited with boosting market sentiment.

The IPO road-show generated larger than expected demand for FB stock, which was met by willing Facebook employees and investors eager to sell. The hype didn’t end there; the stock price was priced higher than expected at $38 per share, valuing the company at $104bn! No wonder Facebook co-founder Eduardo Saverin has renounced U.S. citizenship to sell his Facebook stake and avoid capital gains tax. But the vast bulk of analysis in the lead up to the sale has been Facebook negative: it doesn’t have a sustainable business model, it doesn’t generate enough cash per user (approx. $5 per year, per user), too many insiders are too eager to sell, the price will crash…

But if there are so many reasons to sell, why are people queuing up to fill their boots with red hot Facebook stock?  I think the reason is Zuckerberg, and investors in Facebook are chasing his next great idea. The first thing he could turn his attention to is marketing and advertising. After saying that advertising isn’t cool (or maybe that was Jesse Eisenberg in the film The Social Network…) it’s wrong to write Zuckerberg off as a sell-out now that ad revenue will most likely be FB’s largest source of cash flow.

Let’s face it – online advertising in its current form is far from a success. Ad’s that pop up and block the view on your screen are not only uncool but boring and annoying. The advertising world hasn’t really got on board with the smartphone, either. Although we spend more of our time online than we do watching TV these days (and probably a lot of that time on Facebook), revenue from online advertising has been extremely slow to grow. It is expected to overtake newspapers as the second largest U.S. advertising medium behind television in 2014, however the growth rate of the internet is far superior to the declining newspaper business, which highlights the problem with online ads: they don’t create enough money.

Compared to TV ads, online ones look like their poor cousins. My favourite TV advert is still the Volkswagen ad with the little kid dressed as Darth Vader, which was first played at the Super Bowl a couple of years ago. It was genius, and I still remember it today. Now that he is an official billionaire (well, on paper anyway) Zuckerberg will no doubt need a new challenge. If he wants ads all over Facebook then he needs to make online advertising “cool”. He changed how we communicate – can he make online marketing more effective? If yes, then he could help other struggling industries like the newspaper business that have found online advertising to be a paltry pay master.

I’m not sure what the recipe for success is for online ads, but I believe it includes 1) more story-telling, and 2) higher quality production. The online advertising space should harness the immediacy of the internet. What do people like doing – they like to communicate, they like to watch films and be fed passive images. So why not mix the two together? Some sort of ad that included live client reviews could work wonders. Likewise, rather than just pedal a product, how about using advertising to sponsor a number of posts on a certain event – say a Lady Gaga concert or the Champions League final? I am interested in people’s comments on these things and am willing to tolerate branding if it is giving me information that I find useful or enlarges my understanding of something.

I have never been a marketing professional, nor want to be, but even I can see that for Zuckerberg and Facebook to be a long-term success story he needs to revolutionise online advertising.

Image — Facebook Inc. CEO Mark Zuckerberg is escorted by security guards as he departs New York City’s Sheraton Hotel May 7, 2012. REUTERS/Eduardo Munoz

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