Why you should think twice about an advertising scheme coming from a company that's about to IPO.
A funny thing happened to Facebook on the way to its IPO: It decided that mobile ads are a must. During its first marketing conference, Facebook announced new ways for companies to get in front of consumers, including ads on the social network's mobile apps. If that sounds familiar it may be because Twitter just announced the same thing.
But before you sign up to make your smartphone and tablet debut, wait a moment and consider whether Facebook is focused on putting dollars into your pocket, or taking them out. Its IPO could drive activity that is primarily in its interest and not yours.
Of course, there are mutually-beneficial symbiotic relationships between marketing channels and advertisers. But, as is true with most commerce, such associations are generally successful when the vendor or service provider concentrates on how to make clients happy. Otherwise, the vendor's executives and salespeople are ready to sacrifice you for their own gain.
Facebook has big reasons to focus on its own interests first at the moment. The company has filed for an IPO after receiving truckloads of venture capital. Those investors expect a big profit, and Facebook is gunning for a valuation as high as $100 billion.
Unfortunately for Facebook, its current performance doesn't offer anything near what would justify that level of market capitalization. Last year it saw revenue of $3.7 billion, according to its SEC filings. Growth of customers has already begun to slow and there's some question about what the claimed 845 million users a month actually means. Facebook includes in that category everyone who "took an action to share content or activity with his or her Facebook friends or connections via a third-party website that is integrated with Facebook," which could be simply clicking a like button on another site.
The company has said that increased mobile use is a key to its growth, but to date it hasn't shown ads. That's about to change, just as it is with Twitter. Both are under tremendous pressure to ramp up revenue, which will help "prove" their future and make initial investments pay off.
Be sure that Facebook salespeople will declare that the company's mobile ads are incredibly effective ways of driving consumer engagement. As a colleague of mine, Jim Edwards, points out on Business Insider, Facebook has done well in boosting its ad rates. And average click-through rates were even up 18 percent from the first quarter to the fourth quarter of 2011.
However, that becomes less impressive when you remember that at the beginning of 2011 Facebook ads performed about half as well as traditional banner ads, which aren't the sine qua non of marketing brilliance. Maybe this is because Facebook ads have generally been tucked along the side of the screen, not pushed in front of users in an obvious way. So perhaps putting ads in front of mobile users will do the trick.
The question is whether the road to engagement will become a path to enragement and estrangement. Just for a moment, stop thinking about what that could mean for promoting your company and step into your own pair of consumer shoes. Do you pay attention to ads on Facebook or Twitter? Ignore them? How does the prospect of sponsored ads that appear in your news stream strike you?
When you let yourself think as a consumer, you begin to understand your customer. Given the relatively small screen size of smartphones, you can see how in-your-face ads on a social network are likely to appear. And as a recent study suggested, the line between brand promotion and cyber-stalking consumers is razor thin.
This isn't to say that Facebook mobile ads will be a bad idea. They might turn out to be amazingly effective. Though remember that master marketer Apple has continued to cut the price of its iAd service on iPhones. It's unlikely that the drop from original $1 million to now-reported $100,000 minimum buy-in is because the service has been overwhelmingly successful for advertisers. If Apple has a hard time helping companies sell to its fanboys, what is Facebook or Twitter going to be able to do with a less enthralled public?
So, don't automatically count out social network mobile ads as part of your marketing mix. Just be wary and proceed with extreme caution, testing first to see whether a full embrace is warranted. And remember, don't necessarily trust a company that wants to justify its stock price in an IPO.