What is Facebook Really Worth?

by francine Hardaway on July 23, 2012

At Tony Perkins’ Annual Innovation Summit, there was a fascinating discussion between Facebook investors, digital marketing agency heads, and financiers about Facebook the stock versus Facebook the company. How could a company with 900 million users who spend an average of 28 hours a month on the site have such a lackluster stock performance.

The general consensus was that that the company is wonderful, but the stock will be awful for another two years until Facebook monetizes its advertising properly on mobile. But even on the desktop, monetization through advertising is still in its infancy

So the big job for Facebook, according to everyone on the panel (Michael Moe, Bill Clearly, Paul Denninger,) is to educate brands and agencies about how to optimize their campaigns for social media. In fact, the entire advertising industry needs to learn this, and Facebook should probably be the distinguished professor.

I have been saying this for a while, but the big guns agreed with me today that there must be a new kind of advertising agency that understands how to optimize for social media. If you have ever been in the agency business,you know the old model is broken.

Of course we already have WildfireApp and BuddyMedia, but they have productized and the latter has been acquired. And they are boutiques that can’t handle an entire marketing campaign for a global brand.

Facebook investor Michael Moe of GSV, who is also a Twitter investor, says Facebook is in its infancy for advertising. Most advertisers don’t understand how consumers buy on social media, and consider it either like search or display when actually it’s like neither. But it is already half way between the two in ROI if you are good at it, though very few brands are.

A brand to admire for its monetization of its FB activities is Zappos, which now gets a return of $3.50 in revenue for every dollar invested in Facebook, although it still gets $7.00 from search. Our panel said those numbers would reverse if more creatives understood Facebook.

The next big challenge for Facebook then, having educated its users (the public) to share, is to educate its customers (the advertisers) on how best to reach them on mobile devices. And educate their agencies on how to advise their clients on how to mount successful programs. To do this, Facebook will first have to become less geeky and more media savvy. It needs to hire a larger staff of creatives. Or maybe acquire a team of creatives. That’s going to require a culture change.

The finance gurus agreed that Facebook should have gone out at a more realistic valuation, and that everyone involved in the transaction was at fault. Because of the IPOD snafus, it will probably take the company two years to grow into its valuation, during which time it’s stock will be …dead.

But Facebook, they all agree, will not be.

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