Facebook is not a publicly traded company. Although there are many people speculating that Facebook will go public in the near future. As a privately held company, Facebook is not required to release any financial information to the public. Furthermore, the company does not have to have its finances audited either. That doesn’t keep financial writers from trying to guess how much money Facebook is making.
Recent stories, like this one from Reuters, continue to suggest that Facebook is growing fast and that it is raking in tons of advertising revenues. The source of all this incoming cash, of course, is paid advertising. Some investors expect Facebook to earn more money than Google from advertising in the near future. The idea is that, unlike Google, Facebook users can be shown ads that are relevant to users even when they are not searching.
“We can provide really good, relevant advertising to people because they tell us exactly what they are interested in, and who they know, and those people tell us what they’re interested in,” Facebook Chief Executive Zuckerberg said at the All Things Digital conference this month.
Relevant Ads Worth More Money On Facebook
The business strategy behind Facebook’s rising advertising revenue is sound enough.
A user fills out a profile in which they state that they have “Interests” in various things. For example, a user might say that they are interested in chess. Then, theoretically, that user would be more likely to have advertisements related to chess appear than a user who had indicated interest in other topics. But, does the reality of Facebook ads bear this out?
If you are a Facebook user you may have noticed the various ads that appear on the right side of the screen. These ads are the ones that are supposed to be relevant and “targeted” to users based upon their profiles and other preferences. However, to most users, these ads appear to be thinly targeted, if at all, to their interests.
Recently, some advertisements tried to make use of the personal information in Facebook profiles by using the person’s age in the advertisement. Ads like “If you are 24 years old, you can get car insurance for $20 a month” appeared. Is this what Facebook means when they say, relevant advertising?
Other ads seem to be vaguely geographically targeted. For example, users in Phoenix get advertisements that make use of the word Phoenix (even for national brands and ads) or, in some cases, ads for actual Phoenix businesses. This is indeed useful, but hardly revolutionary. Unless you take advanced measures to frequently wipe out your Google cookies and other information you’ll get plenty of local ads there too.
Ironically, ads that are actually irrelevant and uninteresting to users will frequently appear on the user’s Facebook screen. For example, users that block Facebook games like Farmville or Cafe World still often see ads for those games despite having indicated that they are not interested. Users who are members of a Ford fan club, have tons of posts by themselves and friends about Fords, and have hundreds of “likes” for Ford related sites and information still see ads for Chevrolet. In fact, members of groups like Chevy Sucks or I Hate GM will still see advertisements for those products on Facebook.
Facebook Ads Not Relevant To Users – Worthless?
It is often said that reality is perception. Facebook frequently states how they can target users based upon their personal preferences and information and that concept is often repeated by journalists and analysts. But, is anyone actually checking to see such targeting is being done?
Going beneath the surface and doing some actual business analysis takes more time than many pundits can commit. Savvy technology writers, however, may uncover some interesting nuggets about Facebook’s so-called relevant advertising. The question is, can Facebook establish its “reality” or get a Facebook IPO stock for investors strategy executed before the world starts asking the hard questions?
Time will tell.