From day one of Facebook's (FB) IPO process, the emphasis has always been about how they will monetize mobile. Specifically, how can they get away with increasing ads without alienating their users? From much of the company's rhetoric though, it has seemed that they aren't in much of a hurry to really push the mobile ad revenue stream as it goes against Mark Zuckerberg's vision of being a company that is about its users first. It was also stated as such in their latest S-1 filing where they presented the conflict of increased ads with their company culture.
As such, investors banking on the chances of suddenly seeing popup ads every time they check Facebook on their iPhone will most likely be disappointed. (While we are mentioning mobile devices and the iPhone, for a pure play on riding mobile growth, shares of Apple (AAPL) continue to look much more appealing than Facebook). However, that doesn't mean that Facebook shares will be dead in the water either.
By pretty much doing very little with display marketing, Facebook has garnered a healthy advertising business that is expected to net them north of $1 billion in income for 2012. However, while advertising is a natural choice for producing revenue, it has never seemed that it was ever the ultimate goal for Facebook to become an ad driven company. In that regard, Facebook's founders are probably looking at the way the newspaper revenue model is crumbling. In a similar sense, just like online news has decimated the newspaper business, so can third party apps that connect multiple social media accounts in one place, but without all the ads do the same thing to Facebook's boring display network.
With that in mind, it's important to remember is that Facebook is really in the infancy of monetizing its platform. The way I see it, how Facebook monetizes mobile ads is less important to me over the long run than how they manage to create other revenue sources. In that regard, I kind of see Facebook most resembling Amazon (AMZN).
If you were trading in the late 90's early 2000's, than you probably remember that it seemed like every week Amazon was adding a new market to their offering. What began as books, and naturally moved to CD's and video games, suddenly became clothing, toys, power tools, sofas, and computer hardware. Even Amazon's own programmers joked about it. When referring to the how often they were making changes on the site, it simply became "books, music, movies, and all that other S%$#?." And then one day Amazon reported positive earnings, and everyone was "how did that happen." How it happened was that Amazon entered all of these markets aggressively, figured out what they could process in house themselves, and what needed to be done through third party merchants and then focused on the execution.
Similarly, Facebook is moving in that direction. They already have their strong relationship with Zynga (ZNGA), and are cashing in on Facebook Credit. More importantly, the Zynga partnership is a working example that Facebook can use to pitch new deals with startups and existing gaming companies. Looking forward, it would make sense to also see Facebook push more aggressively in gaining revenues from third party Facebook apps. Probably even some form of a Facebook version of I-tunes for Facebook apps. Also, the bigger Facebook's credit system works, the more likely retailers will move quicker to create online storefronts within Facebook's servers.
As stated earlier, it is important to remember that this whole "money making thing" is still really really new at Facebook, and it continues to evolve as the web changes. As such, for investors, the question is just how quickly Facebook moves with all of its new initiatives and whether it can enter multiple different markets simultaneously like Amazon did?
If Facebook can deliver on these non-advertising revenue streams it will reveal that Mark Zuckerberg's vision of keeping Facebook focused on the user is working, and will most likely trigger more innovation and growth from the company. However, if Facebook can never get past being primarily advertising revenue driven, the overall success of Facebook shares could be limited. The reality being that banner ads will always be in conflict with Facebook's core beliefs of user experience.
In any event, the next two years should see an abundance of new products and offerings from products as they move away from being anchored to advertising, and it will be interesting to see just how well these opportunities perform.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.