Facebook’s 6-Step Recovery Program
By Colin Ryan
A messy IPO, discontented advertisers, a distrustful user base—clearly, the last few weeks haven’t been kind to Facebook, and many of us have looked on in smug satisfaction. But don’t count the tech giant out just yet. Here are six steps Facebook will need to take to get back on its feet as both a publicly traded company and a cultural phenomenon.
The vast majority of Facebook’s revenue (82 percent) comes from ad sales, but businesses are struggling to see a significant return on investment from those ads. In fact, some big advertisers have pulled out, saying Facebook ads are simply not worth it. Part of the problem is the ads themselves, many of which are of shockingly poor quality.
The main stumbling block here is a significant learning curve—that is, Facebook’s ad creation and targeting system is quite complex, and marketers simply haven’t figured out how to use it effectively. Of course, it’s not enough to blame users: Facebook needs to do a better job of streamlining their interface and educating companies on how to use the tools at their disposal.
Diversify Revenue Stream
Another solution to the ad problem is to explore other avenues for generating revenue. One answer: games. After ad sales, Facebook’s next largest share of revenue comes from the purchase of Facebook credits, which can be exchanged for virtual goods in games like Farmville.
Nevertheless, Facebook has stiff competition in this category, with big developers like Zynga creating their own platforms for gaming. Consequently, Facebook may have to reduce the 30 percent cut it takes from game developers to keep their foothold in the industry. They’ll also have to figure out how to draw in a larger segment of users. One solution: feed gaming, which allows users to try games directly from their timelines. With feed gaming, users will be able to decide if a game is worth their time and data before investing in an installation.
Monetize the Middle
Another reason ads aren’t performing well: people aren’t clicking on them. Nearly 90 percent of users polled say they either never or almost never interact with ads or sponsored content. That’s because people visit Facebook to socialize, share, and discover, not to shop. If it can’t warm users up to ads, the company will have to find ways to monetize the meat of the Facebook experience, rather than the margins.
One way Facebook can do this is by expanding its thinking about its customer base. That is, instead of concentrating on companies, Facebook can help individual users—from performers and artists to apartment-seekers and people seeking organ donors—improve the visibility of important posts for a small, one-time fee. The company has already taken some small steps in this regard, testing a post-highlighting feature in New Zealand earlier this month. Hopefully, they’ll continue to explore the idea.
Reevaluate Mobile Strategy
One reason for the lower-than-expected earnings announcement that contributed to its lackluster IPO was that more people are accessing Facebook from its mobile app, which does not feature ads. Obviously, the space and clutter constraints of a mobile interface don’t allow for the same kinds of ads we see when we visit the site, so Facebook will need to develop a new system for helping businesses market themselves effectively to mobile users.
This, however, isn’t the only issue for Facebook Mobile: the app is also suffering from an identity crisis, its features split into separate apps (Facebook Mobile, Facebook Messenger, and now, Facebook Camera). If Facebook’s can’t provide its mobile users with “one stop shopping,” they risk undermining the convenience factor that’s at the heart of the entire mobile movement.
Next, Facebook needs to decide how to get the most from the technologies and companies it has acquired. For instance, a huge chunk of Instagram’s $1 billion price tag came from the app’s brand power and cool factor—and yet, Facebook has just rolled out its own camera app with many of the same features and filters. In other words, Facebook is effectively competing with itself in the social photo-sharing space. Why spend time and money creating a tool and a brand you’ve already bought? It doesn’t make much sense. If Facebook is going to continue to invest in other companies and tools (and apparently, it is), they’ll have to be a hell of a lot smarter about it.
Protect Privacy and Personal Data
Finally, Facebook needs to rebuild the trust not only of its investors, but also of its users, who are increasingly uneasy when it comes to the ways Facebook is using their information. The company has begrudgingly addressed a few of its users’ complaints, backing down from a few controversial policies and simplifying the language of their terms of service. What’s more, users soon may get a chance to vote on the company’s revised Statement of Rights and Responsibilities.
Nevertheless, Facebook hasn’t gone nearly far enough in placating its users. Plus, privacy and personal data will only become more central to and more controversial in the social networking conversation, which means the company must continue to pursue ways to reconcile its pursuit of profits with its users’ concerns about what’s being done with their posts and pictures.
What do you think? Will Facebook recover, or are they poised to fall even further? Let us know in the comments!
Published on May 25, 2011