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Why the Facebook IPO Failed and Why Their Prospects Are Not Positive
Posted on May 22nd 2012
The answer is very simple:
Buyers and Sellers.
Resolved: The Facebook IPO was necessary for shareholders to cash out before you find out exactly what I am about to tell you.
For some of you, I am going to seem like a broken record on this, so if you have read this before from me, just bear with me, or go eat something. I am going to make a few people angry, probably start a few arguments, but I promise you that what I am telling you is the truth, based upon all my experience as a Marketer and a Geek.
Social Media is NOT a Business.
Social Media is as much a Business, as Microsoft Word is a Book.
The fact that the ROI of a Social Media presence simply CANNOT be measured should have been a clue that a number of people are barking up the wrong tree. Had the Social Media gurus been a bit more circumspect in their descriptions of what is possible through a presence on Social Media, instead of treating it like some new and different animal, things might be different. Social Media has been around long enough now, for a lot of businesses (GM included) to conclude not that Social Media is a bad thing, but that in fact it is not so mind-bendingly better than other Outreach devices that Businesses have counted on for years.
I have seen countless arguments by Social Media Consultants, suggesting that prior to Social Media, Businesses had no way of performing direct outreach to their customers. Never mind those things like phones, email, brochures, newsletters, websites, public speaking, press releases, sign-spinners - I could go on for days. Marketing, is MARKETING. It is effective marketing of a compelling product or service solution that makes money. My argument is that Facebook is NOT an effective marketing platform, nor will it ever be, unless…
Stay with me on this.
Facebook revenue by percentage is dropping steadily year to year. Google's is rising steadily. What is happening in the marketplace, is that the attempted meme of Social Media as Goldmine for advertisements has blown up. Social Media is not a destination, but a highway. Google has figured this out. Social Media is not their business, but a facilitation tool for their business. The business is Search.
Putting sellers in front of buyers. At this, Facebook has failed for two basic reasons: It is impossible to measure the ROI of a Social Media presence. Sellers need to know the efficacy of their Marketing campaigns. Analytics with respect to Facebook are a joke. It is a blind bet, and it always will be. The second reason is that people online, unless they are LOOKING, do not want ads in their face. Businesses are finding out very quickly, that the Social Media audience does not take kindly to ads distracting them from Justin Bieber's mug, or YouTube teasers on the upcoming sci-fi thriller Prometheus (I cant wait!) There is a very limited audience of people willing to interupt their Social Media experience long enough for someone to convince them that they need aluminum siding right now.
Facebook is ass-backwards in the sales cycle.
Ask yourself; How often does an ad make you go shopping? Don’t you usually decide you need something first? Ads have power if they meet you within the sales cycle, not in front of it. Ads rarely if ever (food-excepted) cause you to feel a need for a product that did not already exist in y our mind. Each of us knows what we want and need. What Social Media can do, is get us to express those desires openly, in a manner that can be indexed. Each of our posts on Social Media is tantamount to taking a Customer Survey of our desires.
At the time that you become aware that you have a desire for a product, you either act on habit and go buy what you want, or you look for options. More often than not, you initiate a……..SEARCH! Google has an incredibly large index of information about you and I. Facebook has a huge database as well, but did you know that Google only decided to index comments from Facebook users last November?
The result, is that you can get Facebook information from Google, but you cannot get information from within the Google engine from Facebook. Facebook is using Bing, and while a competent search engine, it simply is not Google. Last year, I wrote an article entitled “You are worth more on Google than you are on Facebook”. Now you know why. I know very few, if anyone who thinks to themselves: “I think I need another Sony Bravia, I wonder who has the best price?”… and then goes off to Facebook for more information.
Retailers (smart ones) know this, and put their ads on sites within the Google index. Product comparisons? I am not going to Facebook for that, and if I go to Bing, how does Facebook benefit? Sure, there are Brands on Facebook advertising their wares, and there are interest groups on Facebook discussing and comparing various products, but where is the profit potential?
It is 100 times more likely, that I will come across an ad on Google or Bing and clicked through to conversion long before I ever end up on Facebook, to find a Brand page, find a product, and look for a conversion link or ad that makes Facebook money. Sure it happens, because Facebook does make money from Ads. The problem is, that almost no vendors (except those selling information about how to make money on Facebook) will ever turn a measurable profit. Let me be clear; yes, I said EVER. This is true, because vendors are quickly discovering that you cannot make someone buy very many things that they were not already looking for. You gotta catch them while they are looking. To do that, you have to know where they are looking, and that is where you place your ad.
Contrast this with Google?
I want a new TV… I search Google for Sony Bravia’s and the SERP (search engine results page) gives me a list, which likely includes Sony Corp. If Sony Corp, or a Reseller has purchased the word “Bravia”, and they are local to me, they are going to show up, right in my face. I click the ad, and cha-ching, Google makes money. Now suppose, people within my Google + Circles have been discussing Bravia’s? The links to those conversations are also going to appear in my SERP, and be R-E-L-A-V-A-N-T, because these are people that I have chosen to circle. Now, if I click on that page, I have just performed a Social Media Conversion that can be tracked on Google Analytics.
What if I am the Seller?
If I am selling Ads to Sony, I have a tool to measure the amount of Social Media engagement I’ve received, and maybe I want to start putting up a Brand Page on Google +, so that my threads can become part of those Bravia searches in the future. When someone clicks on my link, they may discover reasons to buy their Bravia from ME, or because of the knowledge displayed, go to my web site, and maybe buy a custom stand, or even click on one of my own ads! I also have the option of a special page for people who came (referred) from my G+ brand page, where I offer a discount as a way to track further conversion.
Then, I do a kick-ass job on Customer support, and gain a customer for life, right? Easy-Peasy-Lemon- Squeezy! Finally, after years of doing a kick-ass job, I might get a *gasp* backlink from Sony, which will move me up the SERP rankings! There are no losers in this kind of transaction, and that is why Google makes money hand over fist. Google is more often than not, a role player in millions of online transactions per month, and they can prove it. Facebook is NOT, and if they were, there is currently no real facility to prove it.
Facebook is lucky that hype is a powerful force in the world, causing many to do things based upon hope, rather than business sense. My businesses are on Facebook, they are also on LinkedIn, and Twitter. However, since last July, every single Social Media conversion into monetization with my businesses have come from the pages of Google, or Google +, because people usually buy stuff when they are LOOKING for stuff.
Microsoft has offered Bing to Facebook. Microsoft owns 10% of Facebook already. Facebook will be a money making venture, with revenue growth based upon sales conversions at a level appealing to advertisers, only when Microsoft owns 100% of Facebook, and forces Bing down their throats.
The smart investment money knows this. Facebook is only one of the three components required for them to become a viable competitor to Google in the marketplace. Facebook has oodles of potential customer data for advertisers. So what? How much is it worth if venders know that Facebook enters the sales cycle at the wrong time, because consumers have already established their patterns for online shopping, and those patterns are difficult to near impossible to break when they work as well as they do. Why fix it if it aint broken?
In summary, I am explaining why the notion of Social Media alone is not a workable sales model. Combined with Social Search, and relevant ads from sites that are selling what you are looking for, or providing value add to same, Social Media has true power and reach. Facebook has size, but it does not have a solution that works with the way that people buy things. All one need do, is look at the growth of Facebook revenue and compare it to the number of members. What you find over time will not be pretty or inspire confidence in Facebook's long-term outlook. Take note, that investors like Warren Buffett never went near the IPO, and was quoted as saying “I think the worst mistake you can make in stocks is to buy or sell based on current headlines." I interpret that to mean Hype and Earnings are two different things.
Earnings matter, and in the case of Facebook, earnings have been declining by percentage since 2010, and with 12% of their total revenue coming from games provider Zynga, they never looked like the current model was garnering success. A stopped clock can make sales on the Internet if you have enough bodies, but not enough to sustain a business long-term. Unless Facebook becomes part of a larger whole (under Microsoft and Bing) they will not gain a position within the consumer sales cycle that will result in a growth curve resembling Google's.
I am telling you that Facebook is currently living off the dwindling hype that Social Media alone can result in a win-win for both Merchants and Consumers, and there is no provable current long-term earnings model at Facebook that makes any sense at all in that regard. Just ask yourself, how and why do you buy things, and how often was Facebook a part of your thought process when you did?
This is my opinion, and you are welcome to disagree.
At the time of this writing, Facebook is trading under their IPO price. Facebook (FB) has been trading on the Nasdaq for 2 days.