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The Future of Brand Management on Facebook

Since Facebook’s initial purchase offering was released in mid-May 2012, there’s been a lot of chatter on whether the IPO was over-valued, undervalued or outright fixed to only make money for the big investment banks involved. All of these issues in stock news tend to distract from the major issue at hand regarding the company; that being whether it can actually make money as a business and be profitable.

Until the IPO release, Facebook has spent years gathering a lot of public awareness and private funding. In doing so, the company has grown from a couple dozen computer programmers to thousands of employees. While Facebook does monetize options for advertising, the company has not yet systematically leveraged its one main product that has 900 million+ subscribers: the social network itself. Half of these users are regularly active on a monthly basis, producing new information all the time.

The appeal so far has been building your online reputation so everyone can find a user. How the company will go about seamlessly integrating revenue generating services remains to be seen, and it is the basis of much of the potential valuation given to the company’s stock.

Advertising

The basic Internet bread-and-butter has been digital advertising. With Facebook, advertising looks a whole lot like click-thru ads typically seen on search engine pages. However, instead of ads popping up based on search terms, Facebook parks small ads on the sides of user profile web pages based on more generic parameters such as interests and location.

The connection between a user and the advertising offered is frequently not apparent or useful. As a result, such advertising is many times ignored. Even so, Facebook has annually made a healthy revenue stream from ad payments. 85 percent of the company’s revenue comes from this source with the remainder from its virtual currency, Facebook Credits, used to buy virtual goods from games or apps on the Facebook platform.

Information Selling

While Facebook has not yet monetized the Mt. Everest of personal data it has stored on its users, the potential is significantly apparent. Whether it be for marketing purposes, statistical information, or specific personal data, the company has the ability to leverage user account profile information and develop information products that can easily be sold to corporate or government clients. This direction has not yet been made official in any manner, but it clearly is the most obvious path for Facebook to monetize the information assets it already owns.

Alternatively, as Facebook continues to tweak and improve its data capture design, it could turn around and sell that tool to a company so they can perform their own searches within the Facebook realm. Rather than being the data-collector, Facebook would then charge an access fee to be the universe purveyor along with providing the easy-to-use tools to navigate that universe. This sort of product could be sold to personnel shops, investigation agencies, marketers, companies, and researchers. The monetization would occur via licensing fees that could be increased or scaled based on how much a client wants to probe into and collect from the Facebook universe.

However, the drawback to this approach is information control. There continues to be consumer pressure on Facebook to protect personal data, as trust is lacking between Facebook users and the company. Facebook will likely continue to find a higher due diligence to protect the information assets from bad use. Facebook has no such obligation legally, but it has come under repeat scrutiny regarding invasion of privacy.

Application Hosting

A number of companies have become extremely profitable simply building apps on Facebook upon parts of the application platform becoming open source in 2008. Zynga is one such example, producing hit games that create revenue streams from users. These games can’t exist anywhere else. They have to use a Facebook website to function. As a result, they are a captive client base for Facebook in terms of fee charging to run such games or products.

Conclusion

Facebook has a long way to go in terms of maturing its profit generation and monetizing all of its potential products. As an investment, the IPO may have been valued correctly for where it could go in the next five years. Remember, stock prices are supposed to represent discounted future cash flows. However, much depends on how aggressive its management wants to be as a bona-fide business. With the IPO sold off, they have plenty of money to cover themselves in the meantime. Facebook must walk a fine line between providing their core service to users, a social network, and leveraging user’s information without becoming off-putting. The company also has much work to do in building trust with its user base, which will be essential. Currently, there is no viable alternative to Facebook because a user would have to bring all of their friends with them in order to leave, or opt out of the online social networking game entirely. But perhaps there will be enough demand to support a social network whose main selling point is protection of privacy and personal data. For a small monthly fee, people may decide one day that their personal lives are worth protecting.

Special thanks to guest contributor Samantha Peters

Photo Credit: Sean MacEntee

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One thought on “The Future of Brand Management on Facebook

  1. John says:

    I see what is traditionally seen as marketing as coming to an end. We forget sometimes that marketing is actually a service for the consumer, the consumer wants to be quickly informed of new products from the brands that they are interested in, and also want to quickly and rationally find the cheapest product. These services are more and more often being delivered for free by ever improving product search engines and price comparison sites as well as brands themselves simply updating customers on new products (that they more often than not genuinely want to know about). The customers actually seek out to be updated about new products they are interested in. They no longer need to be “hunted down” and propagated to.

    Like

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