A new challenge for Zuckerberg: Engaging online advertising

Posted on May 25, 2012

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Mark Zuckerberg, founder and CEO, shows off th...

Mark Zuckerberg shows off the new messaging system in Facebook. Can he create an engaging new advertising system? (Photo credit: Wikipedia)

Facebook. IPO. Hype. Disaster?

Analysts are now saying the Facebook share price may crash to as low as USD 9.59.

The social networking portal’s much-vaunted initial public offering raised a lot of cash for its promoters, who are now busy offloading large parts of their shareholdings on to the market. Subscribers who got in at USD 38 per share have already seen their investment eroded by more than 20%.

Analysts seem to be polarized on whether or not to position the Facebook share as “hold” or simply “dump”. As far back as March 2012, a colleague and I were discussing whether we should or would get railroaded by the hype surrounding the IPO and subscribe. After a back-of-the-envelope calculation, we decided that the IPO was a short-sell opportunity rather than a long-term hold. Events seem to have proved us right.

Mark Zuckerberg and leading Facebook investors cashed out millions of shares before the price dropped off a cliff, company filings reveal. A company executive issued a warning days before the IPO that Facebook’s revenues were lower than expected, information that would have almost certainly reduced the opening price of the newly floated stock. Was there a short-sell in the works?

The new reports are already raising questions about whether top investors profited from the  IPO at the expense of smaller buyers, reports the Herald Sun. Shareholders filed a lawsuit against Facebook and the banks  behind the company’s stock, Morgan Stanley and Goldman Sachs.

Both the US Securities and Exchange Commission and the Financial Industry Regulatory Authority are investigating. The US Senate Banking Committee has also launched an inquiry and the state of Massachusetts has subpoenaed Morgan Stanley.

So, what’s next? If a company of the stature of General Motors finds that it gets more marketing value simply by announcing that it is pulling advertising off Facebook, compared to actually advertising on Facebook, it appears as if the social media portal has gone too far into the void of hype than it should have. GM’s competitor, Ford, on the other hand, appears to be committed to customer outreach through social media. The jury is still out on which of them is on the right track.

Facebook certainly seems to be on a track that may hit a dead end in the next three to five years. Even though internet advertising continues to out-pace print advertising in growth, there are signs that the customer response to products and services advertised electronically is dropping.

So, here’s Zuckerberg’s new challenge: Create a revolution in how online and social media deliver advertising solutions that engage customers and carry a clear value proposition for client companies. If he does turn his attention to this, it would be ironic, given how little he thought of advertisers before revenues became a critical component of pre-IPO hype.

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Posted in: Corporate