From the outside looking in, Facebook is an exciting proposition.
It’s expected to reach one billion users this year, while eMarketer estimates global ad revenue will hit $5.06-billion in 2012, a 60% jump from 2011. It’s not difficult to see why investors are salivating for Facebook’s impending IPO.
But is it all good news for Facebook? Putting aside the user growth, should there be so much excitement about Facebook? Here’s some food for thought.
1. Facebook’s ad revenue growth will slow dramatically over the next three years. eMarketer said growth will fall from 60% in 2012 to 32.8% in 2013 and 13.7% in 2014.
Sure, Facebook’s ad revenue will be $7.64-billion in 2014 but slower growth should be worrisome for anyone thinking about Facebook as an investment opportunity. And according to a ReadWriteWeb post, Facebook could miss its first-quarter revenue projections.
2. As much as Facebook Pages are supposed to be overwhelmingly engaging, a recent study by Ehrenberg-Bass Institute indicates only 1% of people who “like” particular brand actually engage with it in any meaningful way. It makes you wonder about whether brands should be steering consumers to their Facebook Pages so aggressively rather than their Web sites.
3. Facebook advertising is still a volume-driven, low-cost business. From my personal experience, many brands advertise on Facebook because it generates lots of exposure without costing much money given most users don’t click on the ads. When you consider eMarteter’s ad revenue forecasts, it does make you wonder who’s clicking on Facebook ads and why they doing it.
There’s no doubt that Facebook wants to upgrade its advertising pedigree with the launch of premium ads that promise more engagement, likes and recall. Let’s see if advertising buyers are convinced that Facebook is anything other than a volume play.
4. A growing number of retailers have closed their e-commerce operations on Facebook, including Gap, JC Penney, Nordstrom and GameStop.
It’s easy to get caught up in the Facebook hype machine because it’s so popular and enjoys a high-profile. And while it’s a mega-business, it would be a mistake to assume the sky is the limit for the company’s financial growth