The two Facebooks

By 28 January 2012Posts

By Louis Eksteen

Facebook is now rapidly morphing into a two-headed beast. The reason is its intended initial public offering (IPO), a stock exchange listing that will happen this year. The company says it “expects to start filing public financial reports no later than April 30, 2012”.

The first, familiar Facebook is the ubiquitous social network site where users post own, personal content, from mid-December last year in cleverly constructed timelines.

The second face of Facebook is what current and future shareholders are salivating about. This is the commercial side of the social behemoth that brings in cash through advertising. As a stark reminder to conventional media companies that they now live in a brave new media world, Facebook is quickly gearing up to generate a truly massive advertising income stream. All without actually producing any of its own content.

This kind of advertising money used to only go to traditional media companies. Thank goodness South African media giant Naspers owns a small but valuable indirect stake in Facebook through its subsidiary company MIH Russia Internet BV, via Russian super internet investor Yuri Milner’s Mail.ru Group, in which Naspers owns about 30%. Mail.ru Group in turn owns about 2.5% of Facebook. (Milner’s other internet investment company Digital Sky Technologies owns around 8% of Facebook.)

Facebook said at the end of 2011 that certain advertisements, what it calls “sponsored stories” will start appearing in users’ news feeds, not only in the traditional ad boxes listed on the right hand side of the site. How they intend doing this in a way that works for both users and advertisers remains to be seen. (Facebook used to run three ad boxes only — to the right side of the news feed — now they run seven, or more, plus other placements within picture displays.) They have also selectively introduced high-value expanded “premium” advertising options, through their own and third-party direct sales agents.

The major trend that will make traditional media owners frown, is this commercialisation of content directly (the Facebook news feed and therefore, possibly, its timeline). In old world media such as newspapers, magazines and the non-social web, advertising and content don’t mix well. But if Facebook’s way of monetising content streams works (relevancy is key), with buy-in from both users and advertisers, it will give a significant boost to its ad revenue.

The blatantly commercial side of Facebook is relatively unknown outside its current advertiser base, but this is likely to change dramatically as commercialisation is boosted by the demands of a public listing.

The killer advertising sales tool Facebook has that traditional media (and Google) don’t have, is that they know exactly who you are. “Birthday coming up in less than a week? Great advertising prospect. Engaged to be married? We can serve you just the right ad at just the right time. Your buddy loves Brand X, you might too and here’s why.”

Facebook sits on the world’s most valuable advertising database, updated in real time. They’re about to unleash its power.