Facebook Will Balance Demands Between Its Investors And Members

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2013 has finally arrived. With Facebook looking to extend the reach of its business to generate more revenue, such as video advertising and music streaming, the leading social networking site will have to escape from the trouble set by its initial public offering (IPO) during the first quarter of last year.

The slumps in revenue growth and dropping down shares have increased the adverse effects on Facebook, and its upper rank has to search for new income-generating initiatives. Facebook, the world’s largest social networking company, will have to gain the good will of concerns related to privacy, chase after capitalists, and remain committed to the pledge of CEO and co-founder Mark Zuckerberg to keep the company leaning towards social goals rather than business concerns.

In December of last year, Facebook went against privacy advocates after it announced a drop in the level of voting control users have on the website’s proposed changes to policies regarding privacy and data gathering.

Instagram, the photo-sharing service Facebook acquired in 2012, fired up in December a ricochet after raising concerns of selling users’ images to advertising companies without their permission.

Regulators in Europe and the U.S. had investigated the social network amid concern of lackluster efforts in privacy protection.

With the company tapping published data from its more than one billion members to help advertisers sell products and services, Zuckerberg runs a risk of estranging Facebook users and compromises his goal of a more untethered and connected world.

Facebook’s share price is now down 26 percent since the company went public in May of last year, despite the gradual decrease in losses from September, as stockholders look for prospects to increase sales in advertising. It needs to generate cash from more lucrative ad products and services, but backlash from privacy advocates and consumers will remain a pain in the neck. Facebook’s shift from plain social movement to monetization through advertising will continue to upset users.

Facebook Will Look For The Right Balance Between Its Investors And Members in 2013
Facebook Business. Image: Sean MacEntee via Flickr (CC)

Bloomberg’s data gathering found that analysts on average see more losses in 2013: the estimated 35 percent increase in 2012 dropped to an estimated 30 percent ($6.53 billion) this year. While sales of digital wares jumped to 88 percent in 2011, sales for goods on games such as Zynga’s FarmVille fell in the third quarter of 2012 from the previous quarter.

Zuckerberg said during the company’s third quarter earnings conference call last year that Facebook is still in the works to release new paid products. He asked each product group to come up with ideas to generate revenue.

Monetization will never be a top priority, said Zuckerberg in Facebook’s IPO regulatory filing. He wrote they “don’t build services to make money” but to “make money to build better services.” The filing pointed that Facebook was designed to fulfill a social movement and not to be a company in the first place.

Even so, Facebook has proven how fast it can introduce new products with success. Its shares have returned to its former healthier condition with a 60 percent increase after signs of growth in mobile advertisements since it slid down to as low as $17.55 in September 2012. Last year, the company took advantage of rapid growth in mobile device sales and released its tools for the platform.

EMarketer estimates Facebook’s U.S. mobile advertising revenue for 2012 at around $339.3 million – the company had nothing to do with this business in 2011. The research firm estimates it to reach over $1.2 billion, or 11 percent of the market, in 2014.

Facebook is not a nonprofit organization. It is looking into hundreds of options to earn more money. A social search engine, video adverts, music- and video-streaming services, more payment services – all are features that Facebook may opt to use to generate more revenues. EMarketer expects the video ad market to exceed the $8 billion mark by 2016 from $2.93 billion in 2012.

A few industry analysts think the social network may follow suit on Amazon’s and Apple’s moves to sell music and offer movie rentals. They believe that Facebook will choose these forms of content distribution to leverage on being social.

Some experts see another moneymaking investment through Facebook Gifts. Zuckerberg’s company could generate more revenue from purchase suggestions linked to user posts, said Wedge Partners analyst Martin Pyykkonen. For example, ski trip photos may receive gift offers for free or discounted items and services.

Facebook could also expand payment services for goods traded within the website and rival other online payment providers such as PayPal, said Scott Kessler, head, Technology Equity Research, S&P Capital IQ, in an interview with Bloomberg.

If Facebook follows this path, Kessler said it could help manage direct payments and give the company a source for additional income through cuts in each transaction. Facebook currently allows PayPal or credit cards to purchase digital goods within apps that run on its social gaming service.

Another feature that Facebook could roll out is a social search engine. It could allow users to search the Web within Facebook, said an analyst from Topeka Capital Markets. This means Facebook could use Google’s model of selling search-related advertisements.

Audiences at the TechCrunch Disrupt conference in September saw Zuckerberg suggest that Facebook is mulling over to offer a Web search engine without leaving the website.

IDC analyst Karsten Weide said Facebook could account for 5 percent of the U.S. search advertising market – now valued at $15 billion – within a year if it rolled out the search engine.

S&P Capital IQ’s Kessler said Facebook has to stay clear from projects that are obviously for commerce to avoid losing its users’ interest, as part of its ramped up effort to introduce new features.

A few of Facebook’s efforts to earn more money also infringe upon its users’ privacy and only increase the risk of backlash.

One good example happened in December: Instagram – the photo-sharing service Facebook bought last year – changed its Terms of Service (ToS) and hinted that its app will allow advertising firms to use images posted by users without their consent. It drove away lots of members to rival products, such as Flickr, in protest and was eventually brought to court after a class-action lawsuit. A few days later, Instagram CEO and co-founder Kevin Systrom backpedaled and removed the new language from its ToS, expected to take effect this month.

Facebook Will Look For The Right Balance Between Its Investors And Members in 2013
Facebook Balance. Image: Urs Steiner via Flickr (CC)

This year Facebook will try to look for the right balance of demands from both its shareholders and members. A Zuckerberg family member suffered the dilemma that currently have members of the social network who want to share information with friends run the risk of their data losing its privacy.

Randi Zuckerberg, Mark’s sister and a former Facebook executive, got upset when a recent photo of the Zuckerberg family during the Holidays spread through Twitter after her sister’s friend posted the picture on the micro-blogging service. She had access to the family picture because Randi’s sister tagged her name, and it was made available to her based on Facebook’s privacy settings.

The photo was pulled out after a short public lesson from Randi: “Digital etiquette: always ask permission before posting a friend’s photo publicly. It’s not about privacy settings, it’s about human decency.”