Why Advertising Will Kill Facebook

Logged onto my Facebook page a few days ago, on a Saturday, and saw a huge ad for Bing on the Facebook log-in page. I usually only log into Facebook once a day, so I just figured Bing tested out the ad for a day or something like that and I wouldn’t see it again. Logged on again the next day, Sunday, and the same thing. And Monday, Tuesday and Wednesday. This Bing thing, I realize, is not going away. Until I click it to go away that is.

I’m pretty firmly on record that I think social media advertising is a phrase that will not be very long-lasting. Social media management, referring to communications, fan interaction, and overall evangelism, will. But advertising and social media are in my opinion apples and oranges. Never once have I clicked on an ad in Facebook, and now I’m just generally blind to them. Which is practically impossible because I make my living in marketing and advertising and am usually pretty vigilant about these things. I’m one who believes, though, that regular people who use social media are not conditioned to interact with ads or even pay attention to them. So, they don’t work. More on that below.

My main point is that the Bing ad got me thinking. It is quite likely we will continue to see these types of ads popping up and appearing more and more especially as the IPO (Initial Public Offering) pressure increases forFacebook. In 2011, Facebook derived 85% of its revenue from advertising and 15% from other services and fees including virtual currency. So what’s the problem you ask? Advertising-based models work for tons of businesses, why am I skeptical?

The problem is that advertisers spend where they get a return, whether that return is directly financial or shows solid evidence of extending one’s brand and building a community. Once something doesn’t work, advertisers jump and head to the next platform or audience. For advertisers it isn’t about Facebook the service; it is about Facebook the audience and Facebook the reach. Advertisers don’t care about the service or what it provides to consumers; they just care that there’s a shitload of consumers who are there currently who would seemingly be ripe for engagement, interaction, and ultimately sales. Except that advertising doesn’t work that way for all advertisers. Some brands are hotter or more appealing to follow and interact with. Some are inherently dull. So out of the 85% of total ad revenue, don’t you think 80% of that is going to end up pulling spending at some point? Like anything else, I think the 80/20 rule applies. 20% will see benefit and value from advertising; 80% simply won’t, the huge audience numbers be damned.

I’m not at all suggesting the behemoth that is Facebook is in trouble or won’t last. They have enviable numbers and statistics. My point is that based on everything I’ve read, Facebook at least tries to cater to its users and is pretty intensely product-focused to this point. I mean, they built a great service. You can’t be product-focused and advertising-focused at the same time, it doesn’t work. Though advertisers I’m sure are grateful that Facebook is pretty cool, over time they don’t ultimately care about the service…just that people are using the service and that a maximum number of people can see their ads and/or interact with them.

I said to a friend a long time ago, well before Facebook got to 845 million monthly active users, that Facebook should have been a subscription model. Not totally at the expense of advertising, but going back to the 80/20 rule, 80% of its revenues should be from subscription and 20% should be reliant on advertising. Perhaps its not too late. Would you pay $.99 a month, or under $12 a year, for the service as it stands today? I would. My friends would. And as long as the service continued to evolve positively, I wouldn’t have a problem with paying for access to it well into the future. What would happen today if they tried to charge a subscription to its users? They’d lose users. How many? Not as many as you think, I’d argue. Long-term, it would be a more healthy business. Don’t believe me? Ask AOL who is still collecting monthly fees from old dial-up internet users. Yes, dial-up.

My point is that advertisers are rightly fickle and always have been. Right now, today, advertisers are spending money, new social media advertising companies are blossoming, and everything looks healthy. Yet, the 80/20 rule will apply eventually. 80% of advertisers will eventually question the fundamental raison d’etre of social media and where they fit in, and will question whether or not they should be spending time, money and energy in advertising on that channel versus others. If history is any indication, it could begin a spiral of bad product-focused decisions by Facebook to try and cater to fleeing advertisers which will set off an exodus by upset users too. I’m not saying it will go this way. I’m simply pointing out that it is right to question what role advertising plays, if at all, in services like Facebook when discussing the long-term health of a business.

The debate here is not about the viability of social media, or whether or not social media has changed the way we communicate and interact. It definitely has. The debate, rather, is how to make a huge business out of it. When you condition users that, like the rest of the internet, an immensely valuable service like Facebook is free, you condition them that spending money in any capacity while using the service – or that interacting in any type of “commercial” way – is unnecessary and for some people just plain morally wrong. Ironically, if Facebook charged a small subscription fee per month, they would change some of that mentality which would actually benefit advertisers more. I think most advertising professionals understand that not all of advertising is about the direct response model and immediate ROI. Yet, it is an important factor that can’t be denied.

Here’s how I would sum up my feelings on this: 1) Facebook is heavily reliant on advertising revenues today; 2) These revenues come from the immense audience Facebook has built, which stem from a unique and very valuable service; 3) A majority of advertisers will not find success (however measured) through advertising on Facebook and will eventually pull back; 4) This will create some level of stress on FB, which might cause changes to the very service that is so popular right now and create even more stress on its user base (i.e. people will flee). This chain of events, if they occur, really all boils down to a heavy reliance on advertising and having users fundamentally reject advertising as it mixes with the service itself over time.

If I were Facebook, I would understand the value of the service itself and charge a micro-payment. Some users will flip out and be outraged. Some will flee. Others, like me, won’t and would be happy to pay a small price for something of high value that I don’t want to abandon especially if it ensures the service and user experience won’t be negatively impacted in the future. Not to mention, Facebook kind of “has me”; there are tons of pictures in there, and tons of people I’m in contact with solely through the service. The irony, too, is that if I’m paying for something, it is quite likely I will actually engage and interact more with advertisements I see. Most people I find think this is backwards thinking, that the service has to be free and has to subsist entirely off attracting ad revenue. I don’t. If I already know I’m paying for something, I will likely give more attention to the ads I see, would spend more time using the service, and use more of the features of the service.

I guess I’m suggesting a short-term pain for long-term gain approach for FB. Otherwise, I think advertising will kill Facebook as we know it long-term. I could be wrong, and will be the first to say it if I am. I guess we’ll see.

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