Facebook still faces marketing challenges despite its lofty valuation

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Brands have been key to Facebook’s financial success since it launched in Mark Zuckerberg’s student digs eight years ago, with advertising now accounting for 85% of all the social network’s revenue. But despite Facebook courting the presence of every major Western brand, it still has some uphill marketing challenges to face in order to please not only its future shareholders, but the advertisers and users it holds so dear.

One of Facebook’s key challenges is proving that it sits comfortably alongside the likes of TV, outdoor and press as a “traditional” form of advertising.

Despite Facebook having 27.9% of the US display market in 2011, according to comScore, the going rates for display ads across the board are still far cheaper than their more traditional counterparts.

One of the big hurdles to price increases is finding a suitable metric that proves Facebook’s ROI. The social network says it will be investing more in analytics and measurement tools to meet advertisers’ demands for it to prove effectiveness.

Facebook not only needs to prove it has decent click-through rates compared to its biggest display rivals – Yahoo!, Google, MSN et al. – but also that consumers simply viewing its ads create enough buzz as a 30-second spot during the X-Factor. No doubt the soon-to-be public company will be investing more into its b2b marketing and sales strategy to ensure it becomes the medium of choice.

As well as paying for ads, brands have also been building out Facebook Pages to extend their reach on the site – for which it does not currently charge.
Brands with Facebook pages are encouraged to take out ads and Sponsored Stories to amplify their social campaigns.

However, many brands, including Coca-Cola, Disney, Starbucks, Red Bull and Converse already have tens of millions of Facebook fans, meaning messages and campaigns posted to their official pages can reach enough people equivalent to the population of a small country without needing to ever spend a penny.

They did their hard work in acquiring fans early, before Facebook really pushed its advertising products – perhaps to the social network’s cost. Facebook may need to find a way to guarantee this precious marketing device has some sort of mandatory price tag attached to prevent early adopters taking advantage of the free ticket.

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And speaking of “free”, Facebook’s mobile offering still does not display ads – despite 425 million monthly active members accessing Facebook via their smartphones last month and Facebook being the most frequently downloaded app in the US.

Facebook’s S-1 filing reveals that this is soon to change as it prepares to introduce its Sponsored Stories ad format to users’ mobile news feeds.

Its mobile apps are set to be updated in the coming months to allow not only the Sponsored Stories format but potentially other rich media ads as Facebook looks to make a return on its mobile investment.

Facebook could become the leader in what is anticipated to be the forthcoming “SoLoMo” (Social Local Mobile) revolution but it has many rivals, both big and small, it will need to overtake – or perhaps acquire – if it bids to rule this particular marketing uprising in the same way it has dominated the social space.

Another area Facebook still has to conquer is e-commerce. Transactions using Facebook’s virtual currency Credits accounted for 15% of its revenue last year. This was largely derived from social gaming company Zynga, which also went public just three months ago.

The sale of virtual goods is anticipated to generate $15bn (£9.5bn) in revenue by 2014, according to In-Stat, and it is a fair estimate to say that Facebook is likely to produce the bulk of this.

The use of Credits is currently almost exclusive to games but there are clues that this could be set to change. Facebook Social Apps launched last September launched last year, with brands from the Guardian to Spotify jumping on board to allow users to serindipitosly share their interactions with their content. Last year also saw the introduction of F-commerce, allowing retailers to sell their goods via the Facebook platform using tradtional credit/debit card payments.

The S-1 filing reveals that Facebook is planning to invest in its payments offerings to make the experience “as seamless and convenient as possible for users and platform developers”, which alludes to the idea that Credits could be open to brands beyond the gaming sector, allowing customers to buy their goods without needing to leave the social network.

While Facebook’s estimated $100bn (£63bn) valuation puts it in the same ballpark as stalwarts like McDonald’s and Amazon, it still has a series of marketing hoops to jump through to ensure its future financial viability.

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