Facebook debuted it stock on May 18, 2012. Unless you’ve been living under a rock, you know how disappointing that was for the company. Here we are five months later, and they have experienced their best day yet in trading. This is most likely due to investor reaction to their third-quarter numbers, which were released on Tuesday. Mark Zuckerberg was quoted in a Tuesday afternoon conference call:
I want to dispel this myth that Facebook can’t make money on mobile.
How did he dispel this myth? Why the sudden surge in mobile advertising profits? Facebook is an amazing company that gives so much to its users, and it doesn’t cost them a dime, but why the sudden boost in profits? Enter: the “Promote” option.
Spring 2012, right around when the IPO came, I started to read more and more from users, bloggers, small businesses, garage bands, etc. that the traffic driven from Facebook was way down. Some even claimed that it was intentionally turned down. Each post was only being seen by a tiny percentage of people who had “liked” their fan page. It’s not just the fan pages though, I noticed on my own “newsfeed” that I no longer saw information from the different pages I had liked. As an example, food trucks are becoming a trend here in Dallas. There is a food truck called Ruthie’s Rolling Cafe that makes excellent grilled cheese sandwiches. During the 5 minutes I spend on Facebook at the start of the day, I would always see them post where they would be parked that day, if they were close to me, there’s a good chance that was what I was having for lunch that day. The posts stopped. Well, they stopped showing up in my stream. After a few weeks I noticed I wasn’t seeing their posts anymore, so I checked their page. Ruthie was posting every day, but I wasn’t seeing them, along with the other 7-8 pages I had “liked”. Poor Ruthie can’t afford to pay Facebook to reach every fan just to tell them where they are parked that day.
Then I started noticing the promote button. In this NY Observer article, the summarize that Facebook is broken on purpose.
It’s no conspiracy. Facebook acknowledged it as recently as last week: messages now reach, on average, just 15 percent of an account’s fans. In a wonderful coincidence, Facebook has rolled out a solution for this problem: Pay them for better access.
As their advertising head, Gokul Rajaram, explained, if you want to speak to the other 80 to 85 percent of people who signed up to hear from you, “sponsoring posts is important.”
I get it. Facebook is in it to make money- for themselves and their stockholders. But Facebook has seriously overestimated what people are willing to pay to reach their fans.
At $200 a post to reach all fans, Facebook is squeezing a large portion of the advertisers who simply cannot afford that. Not everyone is a brand with McDonalds or Nike bankrolls. If you are Ruthie and you’re selling sandwiches out of a food truck, $200 a post is way out of your budget. What are the chances a smaller site, with 50,000 (much much less in a lot of cases) “likes” can afford $200 a post? Maybe a more reasonable rate, $5 to $10 a post, wouldn’t alienate a majority of people with fan pages on their site. I am sure the team working on Google+ sees this as a positive for them. They just want the users. And they may just get them, if Facebook continues to gouge the small guy out of every dollar they can. Will Facebook drop the cost to promote a post? Only if people stop paying.