Facebook IPO may force journalists to consider their role in the social network’s growth

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Facebook’s IPO just created a lot of billionaires. Probably not that many of them work in journalism. But journalists, Kristie Lu Stout argues, create part of Facebook’s value. “Journalists have been flocking to Facebook to create content and connections on a platform that the company can use for all time,” she writes. “Not only that, we’re feeding an advertising rival that’s only going to get bigger after Friday’s IPO.”

Facebook’s an advertising rival because it’s really a media company, Mathew Ingram writes: “Like Twitter, the content within Facebook may be generated entirely by users, but the business model is all about advertising, just like any other media entity.”

And Facebook ads deliver even worse results than other Web ads. Worse, they clutter the experience: “Facebook actually has an even bigger mountain to climb than newspapers or other media entities do when it comes to advertising, since the social nature of the network could actually interfere with the effectiveness of traditional ads,” Ingram writes.

Despite the recent high-profile defection of GM from the site, though, Facebook’s experimenting with other revenue models, and it’s hard to see advertisers abandoning a website with 900 million users. But: “for the moment Facebook is still overwhelmingly reliant on advertising,” Ingram writes, “and as every other media company is painfully aware, that sword cuts both ways.”

Even if Facebook’s not making journalists rich, it’s certainly helping to keep them employed by talking about it!

In an interview with BuzzFeed CEO Jonah Peretti, BuzzFeed CEO Jonah Peretti says his company makes “all our revenue from social advertising. At first this made it very hard for us to sell ads but we stuck to our guns because it was clear to us that banner ads don’t really work.” Social ads, he says, “perform so much better than standard display: 5x to 10x the click through rate, users who share ads instead of ignoring and hating them.”

Facebook’s good for journalism, too, he says, “Good journalists hate aggregating and summarizing and rewriting news. Aggregation works great for generating Google traffic but on Facebook you are rewarded for original, substantive work.”

Derek Thompson says Facebook’s value to advertisers will be the hinge on which its future worth depends. Right now, he says, “it allows marketers to display information to a segment — such as guys born between 1970 and 1990 who live in northern Virginia and like Coldplay.” (Full disclosure: I don’t like Coldplay.) But that sets up a tension the company will have to resolve:

In 2011, Facebook made $4 per user per year. To earn its market cap of $100 billion today, it would have to earn five-times that figure per user. This sets up a tug-of-war over user information. Facebook has lots of it. Advertisers want to see more of it. Users want them to see less of it. The true value of Facebook could depend on who wins that turf war.

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  • http://www.zoealexanderuk.com/ Zoe Alexander

    Facebook has such a wide and diverse audience and such a defined demographic target for advertising that it is always going to successfully generate big revenues on its current platform. I agree that compared to the likes of Google, the advertising seems to be less successful from personla experience but it still generates clicks!  I really can’t see there being a problem for jornalists.

  • http://twitter.com/pp19dd Dino Beslagic

    Journalism and journalists need not worry because news does not compete
    with Facebook.  Facebook does not take traffic away from news sites, it
    adds to them.  And even if you don’t get pageviews from your active ‘social media’ effort, you
    get intimate exposure and visibility for your brand.  That’s a real thing, and it’s a form of ultra-cheap marketing for news organizations.

    While it’s the new IPO kid on the block, things will be good. Investors will baby their new inflatable piggie bank. But sometime thereafter, things might get really ugly.  See how disconnected from reality this IPO worth really is. Amount of time it would take a normal person to reach portions of these core investors’ portfolio is measured in LIFETIMES.

    Hit the right arrow a few times and see just how ridiculously inflated this is; http://www.voanews.com/content/how-long-would-it-take-you-to-earn-as-much-as-facebook-shareholders/667093.html