May 20 2012
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A new challenge for Zuckerberg
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 paycheque and will be USD 150 million richer as a result. Facebook is one of the biggest IPOs in the US ever 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 USD 38 per share, valuing the company at USD 104 billion! No wonder Facebook co-founder Eduardo Saverin has renounced US 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 (approximately USD 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?
Let's face it: online advertising in its current form is far from a success. Ads that pop up and block the view on your screen are not only uncool but most are boring and dull. The advertising world hasn't really got on board with the smart phone 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 US 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.
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 paymaster.
I'm not sure what the recipe for success is for online ads, but I believe it includes more story-telling, and 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 includes live client reviews could work wonders. Likewise, rather than just peddle 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.
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