In a dramatic triumph of hope over experience, I bought into the Facebook IPO hype today.
I just got off the phone with my broker at Morgan Stanley and placed an order for 1000 shares of Facebook. (Morgan Stanley is one of the major underwriters of the Facebook IPO, and if you’re a client of theirs, you can actually place an order to stock at the IPO price before the company goes public tomorrow.)
It’s a pretty big investment for me and might come as a surprise to some, given that I recently published research on Tuesday morning that basically concludes Facebook advertising is awful. The research was picked up early on by Jim Edwards at Business Insider, and John Letzing at the Wall Street Journal, and Laurie Sullivan at MediaPost.
As if to validate the research, a mere 6 hours later, the Wall Street Journal announced that GM was dumping all advertising on Facebook, and our research – seen as a possible explanation for GM’s move – got picked up by Mashable, ABC, CBS, Fox Business, PC Mag, PC World, the Washington Post, USA Today, AFP, CNN, The Register, Fast Company, The Economist, Forbes, etc., etc.
So why is this internet marketer sinking up to $35k+ (depends on price and final allocation) of his own money into what he views as a terrible internet advertising venue? Here’s why:
- Facebook brought in $4 billion last year. In spite of our research showing that Facebook ads leave a lot to be desired – dopey ad formats, hopeless targeting options, no ads at all on their mobile platform and questionable ROI – the flip side is they still pulled in $4B last year. Imagine if they actually figured out how to monetize their audience! This may just be a matter of rolling out more engaging ad formats, helping advertisers better target to people who are likely to buy what they’re selling, and offering more support for advertisers.
- Or they could just give up entirely on ads. GM is dumping $10M in Facebook advertising, but will still invest millions growing their Facebook fan page, which is currently free for advertisers. (The money is spent mostly on content creation efforts and managing engagement.) The current model is that Facebook is giving that very valuable platform away for free, and charging for ads that nobody clicks on. They may be better off switching that around.
- Or they could charge the users. Facebook could charge for premium features, similar to LinkedIn. Heck, why not? If they charged users $3 a month for premium features, they’d be a $33 billion dollar company. Is it possible? Given that I spend about $10 a month buying “bombs” for Draw Something (a popular mobile game), I think that’s definitely possible.
- The people at FB are no dummies. Yes, their ads currently suck by any objective measure, but it’s always been a question of will. I think that the pressures of being a publicly traded company will result in them having to focus on revenues, and I’m confident that they will figure it out. Key to fixing their horrible ad relevancy is that they need to support remarketing – the ability for advertisers to tag their website users with a cookie – so that advertisers can continue the conversation, and engage with prospects after they leave their website and then go spend 20 minutes a day on Facebook. Currently, Facebook advertisers can only really market to people who are already their fans. Remarketing would let them market to people who are on the fence, those potential fans who are interested but maybe haven’t converted yet.
- 1 trillion page views per month. Facebook got an A+ in our study for advertiser reach. Even if they haven’t quite figured out how to monetize their insanely huge and active user base yet, having that captive audience is a powerful thing. It’ll be exciting to see what they do with it.
So yes. I bought into the Facebook IPO hype today – even though a few months ago I was telling everyone at the office not to. But I’m not buying Facebook stock for the company it is; I’m buying it for the company that I, as both an internet marketer and a Facebook user, want it to become.
Read the Surprising Follow-up Story: Why I dumped my Facebook IPO Shares at the Open Today