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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.