Facebook’s Future Is In Services Not Ads

 Facebook's Future Is In Services Not Ads

An avalanche of reports were released yesterday on Facebook Inc (NASDAQ:FB), and its future. Most of the reports were positive and set 12-18 month price targets far above what many were advising after the firm’s bitterly contested initial public offering. Each of the reports looked at way in which Facebook might grow in the coming years, but most ignored what is patently true. The move to mobile is a bitter blow against the company.

Facebook’s advertising on mobile is incredibly limited. At the moment the firm only offers its controversial “sponsored stories” are the only outlet available to companies on the social network’s mobile app. This is due to the limited screen size on such devices.

Ads that display in a user’s news feed have been shown ineffective according to a survey by Yesmail released earlier this week. That report offered the conclusion that Facebook Inc (NASDAQ:FB)’s main avenue of effective advertising is in rich media and video.

The use of either of these strategies on a user’s smart phone is, unless done in an extraordinarily innovative way, going to break the user experience for those users. The company is left gaining limited revenue from ads that simply do not influence a customer’s choices in a meaningful way.

The move to mobile will only increase in the coming years. The advent of smart phones, tablets, and hybrids like those coming with Windows 8, means that most will be launching their Facebook page from an app rather than from a traditional web browser. Facebook needs to meet this challenge head on, and the solution may not be advertising.

Facebook Inc (NASDAQ:FB) has seen huge successes come from its sponsoring of exclusive services on its platform. Zynga Inc (NASDAQ:ZNGA) is a clear indicator of this business model. For Facebook Inc (NASDAQ:FB) to succeed the answer may be offering a host of services, like Zynga’s games, on its platform.

In the only truly negative assessment on Facebook Inc (NASDAQ:FB)’s outlook released yesterday BMO placed the firm’s price target at $25. Among their criticisms came a sign of hope. The report said that native monetization was an important point to consider. The analysts offered examples of wedding planning services, and e-commerce.

Social services are becoming more and more popular, Google have been surging ahead in allowing users to access those services using their accounts. Facebook lives in incumbency here and could offer a much better alternative to the current standard.

This could become a mix of advertising and application, in app purchases mixed with branded applications that need to be paid for to be supported by the company. This is exactly the kind of rich media advertising that captures the attention of consumers. Time is short, however.

Google is racing ahead in this area and Facebook is falling behind. The firm is trying to compete with Google in a sector Google is doing everything to diversify from.

It is not time to build a smart phone at Menlo Park, it is time for the company to use its highly developed platform and attentive user base to move beyond advertising as a sole path to growth. Facebook needs to improves its position as a platform for apps and services. If it doesn’t, it needs a miracle to pull off mobile advertising in a non intrusive way.

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About the Author

Paul Shea
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