First, I’m not an owner of Facebook stock, and I didn’t get in on the IPO.
Facebook has plunged 25% since their IPO a couple of weeks ago. Was it valued too high at the IPO? Probably.
But I’m not too worried about their long term position.
It’s quite simple.
Facebook is in the Tollbooth position. More on that in just a bit. But Facebook has huge amounts of data on their users (think demographic & psychographics.) Advertisers are willing to pay big bucks for better targeting; and the transparency of internet marketing and almost infinite measurability makes that data valueable.
Sure, GM made news when they said they planned to cancel their $10M campaign due to “not generating good ROI.” But taking a very narrow view, FB may have generated almost $4 Billion in ad revenue in 2011, which if take a few guesses is maybe 4,000,000 businesses spending an average of $1,000. So there are the GMs, spending $10M, and small local businesses testing out a few things and spending a few hundred.
I first heard of the “Toll Booth Position” from my early marketing mentor Dan Kennedy; who attributed it to Harvey Brody. You can read more about the whole concept here. But the short definition is this: Imagine you have a toll booth on a popular bridge between two cities… if anyone wants to get into the city, they have to pay you to use your bridge.
In this case, Facebook owns the bridge that links almost 1 billion people. It’s a sticky interface; the average FB user is on over 2o minutes a day; sharing statuses, likes, locations, photos, etc. etc. Don’t forget that millions of small local businesses also maintain FB pages where they can put themselves, their offers, events, and invitations directly into the timelines and feeds of millions and millions of users.
Right now, everything but display ads are free. Including FB pages for business. But as FB evolves, and pressure mounts from the shareholders to become profitable, monetization of the users and user database will be super important.
It wasn’t so long ago, that I used to pay $600-700 / month for a yellow page ad for my small business. This was before Internet marketing was accessible for the local small business, and critical mass had not yet been reached for online marketing. I didn’t like forking over all of that folding green for something that I couldn’t measure; so I payed attention to each incoming new call and at the end of the year, I calculated the value of that yellow page ad. The worst I did was break even. The best I did was 150% ROI. I learned to get better, write better copy, create a stronger call to action, and convey the benefits of my services. Back to the point… Google has replaced the yellow pages for many people, especially in this age of smart phones. But FB is right behind. Facebook has the IV drip right into the customers veins.
Who’s to say FB won’t start charging Small Business owners for maintaining a page to interact with fans and customers? Maybe on a tiered pricing model… 0-200 fans/likes= Free, 200-500 fans-$50/mo, 500-1000 fans, $100/mo etc.. And, perhaps you send out invitations to events at your business, well; FB is the post office, and you might have to pay for that too… I’m just sayin’, don’t say I didn’t warn you. It’s coming.
Sure, FB has had it’s share of problems forcing things down the users’ throats; timeline, privacy settings, etc. But they will manage to find a way to monetize their toll-booth. They’ve got a lot of people smarter than me working on it right now.
It’ll be a bumpy ride, but fun as hell to watch.
This just in: an interesting take on FB by FaberNovel