Facebook is going public soon. You already knew that I'm sure. You probably also know that Facebook makes most of its money from ads. Not all of it, but a very significant portion. If the company's relationship with Zynga ever sours, it may have to rely on ad revenue even more.
There is still plenty of room for Facebook to grow ad revenue, even if there's less room for it to grow users. For example, they don't even have mobile ads yet, though that is expected to come soon. That should be another huge source.
Recently, Facebook began showing Sponsored Stories in the news feed. These are posts that are arleady out there on Facebook, which brands can decide to promote for increased visibility among the people connected to that post, whether it be from a friend or from a Page they "like".
The Wall Street Journal ran an interesting piece about how brands are essentially being forced to pay for advertising on Facebook to reach users, simply because the visibility of free Page posts has declined so much. There is so much content flooding users' News Feeds, and of course Facebook controls what users are seeing via their algorithm, based on what the company calls "EdgeRank." More on EdgeRank here.
Some are finding it harder to get posts to gain traction.
The Journal cites a study from BlitzLocal, saying that between June 1 and Dec. 31 of 2011, unpaid displays of marketing posts to users decreased 33% among the firm's over 300 clients.
"Content that used to live for a day may now live minutes in a user's News Feed," CEO Dennis Yu is quoted as saying. The piece looks at retailer Gordman's specifically, as a company which has felt the need to turn to sponsored stories just to gain some visibility. The company reportedly found that sponsored stories increased the number of users who saw a post by over 100,000.
Basically, what this all means is that if you don't pay Facebook for ads, you're left to the mercy of their algorithm for visibility, and who knows just how Facebook is tweaking that? Does it remind you of the search marketing game?
There is one key difference, however. Facebook does allow users to adjust the way they view their News Feed, so you can see stories by time, rather than what Facebook's algorithm handpicks for you to see. This is the way many users do view their news feed. I have no idea what the numbers look like in terms of how how many people do this, and how often, but I'm guessing many, many people don't bother. That's likely where those extra 100,000 users come in.
Whether or not advertisers choose to pay for sponsored stories, brands are still going to want to take full advantage of the free marketing benefits of the world's largest social network. To do that, you have to consider that EdgeRank algorithm, and of course engage on Facebook.
Sundeep Kapur, a guest author on BlitzLocal's blog, said in a recent post:
Successful brands need to focus on increasing interaction effectiveness with their consumer base. You do this by increasing the frequency of exposure, paying close attention to what is being discussed, and focused advertising.
Interactions with consumers will occur as you post and more than 70% of the interaction occurs within the first hour. So keep up your efforts on posting more often and monitoring right after you post versus posting and “going to bed.” Also, a post with a “question” tends to drive increased interaction.
Don’t forget that advertising does work. Your engagement rate can go up by 21% to 43% by knowing what to say, when to say, and of course how you say things on Facebook.
In a separate post, the firm, after conducting research on both large and small brands, also suggested:
Some valuable tips. At least only one of these (sponsored stories) is something you have to actually pay Facebook for. Unfortunately, that might be the one that helps you drive visibility more than anything. That is, unfortunately for businesses with tight marketing budgets. Fortunately for Facebook, as it aims to boost revenue as a public company.
I wouldn't be surprised to see it become even harder for brands to get their messages through without sponsored stories. What do you think?