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    Sorry Mark, Nobody Wants to Pay For Facebook

    Written by

    Alec Liu

    Contributor

    Forget about the hoodie, or the high ask-to-talk ratio, or Zuck’s favorite video game (it was Civilization, the object of which is to “build an empire to stand the test of time.”) There are no shortage of oracle bones to presage the outcome of Silicon Valley’s largest ever IPO, no shortage of kindle for the raging pyre of hype.

    But as Zuck Friday approaches, all that buzz makes it hard to hear the biggest question: how much will anyone – from the companies that advertise to the users that power it – pay for this thing? General Motors, among the heaviest spenders on advertising in the world, delivered their answer, very loudly, yesterday, in the negative. The American automaker announced it was quitting Facebook ads altogether, the Wall Street Journal reported yesterday.

    “Companies in industries from consumer electronics to financial services tell us they’re no longer sure Facebook is the best place to dedicate their social marketing budget—a shocking fact given the site’s dominance among users,” said Nate Elliott, an analyst at market research firm Forrester, in a company blog post on Monday.

    And it’s easy to see why. Despite Mark Zuckerberg’s uncanny talent to get users to “engage,” no one’s actually clicking on any ads. Compared to most other forms of online advertising, Google especially, Facebook is still pretty crappy:

    Facebook IPO: Can it beat Google? (Wordstream)

    So someone has finally called Zuckerberg’s bluff. Indeed, the entire premise of the company’s stratospheric valuation is Zuck and co. can somehow convert all the time we’re wasting on Facebook into cold hard cash. In fact, click-through-rates (CTR) have gotten worse every year since 2009, even though people are generally spending more time on the website.

    All of which is somewhat unsurprising. Zuckerberg has never been all too focused on the business side of things, delegating such trivialities to COO Sheryl Sandberg while CFO David Ebersman deals with IPO things, like wearing a suit. “Well I don’t know business stuff,” Zuckerberg conceded to a friend while still at Harvard. “I’m content to make something cool.”

    But maybe this “if I build it, they will come” approach has shielded him from a potentially nasty conundrum: what if the Facebook platform just isn’t conducive to making money? For Google, ads and search were like peanut butter and jelly, it just made so much sense, and accordingly, so much profit. Facebook’s situation is stickier, convoluted by growing privacy concerns. Throwing Google a few search terms seems generally harmless. Having Facebook cash in on my personal info and party pics feels like a violation of my constitutional rights. And so, even as Zuckerberg remains eminently focused on changing our habits, extracting actual monetary value continues to be a struggle.

    How much a unique visitor is worth (Business Insider).

    The users – or, as some people call them, the site’s massive free workforce – aren’t so interested in doing much work for Facebook. It doesn’t help that people don’t trust Mark Zuckerberg. Worse for Facebook, this wariness is actually making Facebook’s data set gold-mine less valuable. According to Consumer Reports’ new study on the social network, “25 percent said they falsified information in their profiles to protect their identity, up from 10 percent two years ago.” It also prevents him from pushing too hard.

    Part of it stems from Zuckerberg’s abrasive attitude and colossal arrogance when it comes to updates, preferring to have his way rather than give the users what they want. Some features, like “frictionless sharing” have really pissed people off while others like “social reading” are downright failing. And then there are those experiments down in New Zealand where users get to pay a couple bucks to have their updates covertly promoted. You don’t need me to tell you how bad of an idea that is.

    All of these compromises, in the name of “sharing” (read: privacy mishaps), have created a growing sense of animosity and resentment towards the brand. Outside of Time Warner Cable subscribers, has there ever been a base of users so ready to quit a service they’ve helped make so popular? As it stands, nearly half of Americans see the social network as a passing fad. The people are fickle. Imagine if my building had FiOS.

    Now it seems that some companies are beginning to feel the same way. Realistically speaking, GM’s $10 million expenditure in 2011 is peanuts relative to $3.7 billion in revenue Facebook reported that year, but the pullout may be indicative of a broader downturn. Last quarter, the social network made only $872 million, down from $943 in the previous three-month period, though Facebook will be quick to blame “seasonal trends.” Has Facebook already peaked?

    Facebook’s revenue growth (Business Insider).

    There is also the risk of a domino effect, that the GM bust will provide necessary inspiration for other paying skeptics, according to Melissa Parrish, an analyst at Forrester, because fancy metrics aside, the equation for advertisers is simple: money spent has to translate into actual sales.

    “My colleagues and I have spoken with several other advertisers who were already thinking of putting their dollars elsewhere,” Parrish told the New York Times. “Now that G.M. has done so in such a large and public way, many of the fence-sitters will know that they’re not alone in their disappointment about their results.”

    Of course, just because we refuse to pay, doesn’t mean we’re actually quitting Facebook. GM is still spending $30 million this year to manage Facebook “content,” in other words, maintaining the company’s Facebook page, of which not a dime goes to Zuck’s corporate coffers.

    Because apparently, we’re still cool with Facebook — as long as it’s “free.”

    Follow me: @sfnuop

    Topics: facebook, IPO, revenue, business, stock, market, exchange, advertising, zuckerberg, Mark, public, offering, money

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