Facebook yesterday amended its IPO documents to underscore to investors the business risks of its rapidly rising use on mobile devices, where it brings in no meaningful advertising dollars.
But the company may face even more fundamental questions about advertising from its existing customers.
I talked with William Pearce, a business school lecturer at University of California, Berkeley. He’s worked for some major brands: he was Chief Marketing Officer of Del Monte until 2011, and previously held the same role at Taco Bell as well top positions at Campbells Soup and Proctor & Gamble.
Marketers, Pearce said, are still in the early stages of evaluating the value of the Facebook fan page. That’s one main way major consumer companies engage with segments of the social network’s users. Often they’ll buy paid advertising or sponsored stories on Facebook to promote that page.
So what’s the value of a Facebook brand page with a million fans? How does that translate to sales?
Facebook’s main customers—that is, the marketers buying ads—don’t yet know. There’s not yet a lot of data, and some, Pearce said, are frustrated that the company isn’t doing enough to help them figure it out.
“Facebook likes to say to advertisers: you’re thinking about us all wrong. Don’t think of us as a traditional advertising platform. Think of us a way to open a dialogue with your customers,” he said. “That may be true. But if that is in fact the case, they’re going to have to price their product in a way that makes sense to marketers.”
There’s also still a lot of room for Facebook to grow. Advertising made up 85 percent of Facebook’s total revenue last year, or $3.2 billion dollars, but the biggest global brands spend up as much as a $1 billion each on their marketing budgets.
The company could be valued at up to $96 billion dollars when it hits the market on May 18th. It is expected to be the largest-ever IPO from an Internet company.
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