What Does Facebook’s $100 Billion IPO Mean for You? More ads.

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May 15 2012 5:38 PM

What Does Facebook’s $100 Billion IPO Mean for You?

More ads.

(Continued from Page 1)

The problem for Facebook is that one or two ads by beloved companies like Ben & Jerry’s just isn’t going to cut it. To justify Facebooks’ $100 billion valuation, investors are going to expect amazing growth in its revenues—something on the order of 25 to 30 percent per year, according to analysts. At the moment, Facebook makes nearly $5 in revenue per user per year, and just $1 in profit per user per year. Because it will be difficult for Facebook to attract far more than a billion users—there are only so many Internet-enabled people on earth—its revenues must grow by selling each user for more money to advertisers. As my colleague Will Oremus explained last month, Facebook has to find a way to generate an order of magnitude more money from each of us. If it doesn’t make steady progress on that goal every single quarter, its stock price will fall—and even though Zuckerberg is very well insulated from shareholder revolt, a falling stock price will hurt Facebook’s ability to hire the best engineers, to acquire the best startups, and even to attract more ads.

This is how the bombardment will begin. Like urban graffiti, the ads will show up with greater frequency in your feed and on your phone. Then they’ll begin to put them in parts of the site you didn’t even know existed. Not long ago Facebook began selling the “logout page,” the screen you see when you’re done with the site, for $700,000 a day. (I just logged out and saw a big ad for Samsung.) What other such unexploited places will come next? The relationship update page (change to “single” and you see an ad for Match.com) and the events page (create a birthday invitation and see an ad for bouncy houses) are great possibilities. This sounds silly, but hey, look, Facebook just began testing a way for users to pay a small fee to get their status updates seen by most of their friends. If Facebook will now allow you to bother your friends for a fee, what won’t it do?

And it’s not just Facebook.com. Very soon you can expect Facebook’s ads to migrate far beyond its realm. The site’s elements—Like buttons, comments, login functions—already appear all over the Web. Facebook will likely expand these third-party relationships into a full-blown advertising network, an effort to have relevant ads follow you wherever you go online. Now when Ben & Jerry’s pays Facebook to promote a post, you’ll not only see it in your Facebook feed on your phone and your desktop, but it could pop up right here in Slate, alongside this article.

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Zuckerberg will obviously need to balance the whims of advertisers against the desires of users. If more ads push users away, that will hurt his revenue, too. Facebook, to its credit, makes most changes by evidence and experimentation. When it comes up with new ad products, it usually tests them out with a subset of users to see how they perform for both advertisers and advertisees, and then it ramps up or down the ads’ presence accordingly. I don’t expect that practice to change, and if a particular ad or advertising style proves extremely irritating to users, Facebook will surely eliminate it.

But the IPO is sure to change the calculus involved in such decisions. So far, in the constant battle between users and advertisers, Facebook has tilted to users—advertisers always want more, and Facebook has refused to give them everything they want. Now that Facebook is always going to have to watch the bottom line, it will have to bend to advertisers. Today the Wall Street Journal reports that General Motors decided to suspend a $10 million Facebook ad campaign because the ads didn’t perform very well. What will Facebook do to attract GM back? Will it sell you out? Don’t be surprised if, very soon, your religion appears as, “Worshipping my Chevy Cruze.”

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