Facebook (FB) has recently received a few potentially positive stories to put in its news feed from some research reports. According to a recent report in TechCrunch, data from three of Facebook's partners that help brands buy ads indicates that Facebook mobile sponsored ads have higher click-through rates than ads viewed on Facebook on personal computers. The mobile ads appear in user's news feeds, and given small screen sizes, it would be interesting to know if the studies accounted for accidental touchscreen clicks. In contrast, the PC ads can appear as "Sponsored Stories" in news feeds, or in sidebar ads.
Further, a recent report by comScore (SCOR), suggested that users who post messages about a company, and their Facebook friends who see those messages are both more likely to buy a product from that company than users who do not post or see such messages. AllThingsD analyzed the report in an aritcle dated June 12, 2012, pointing out that Facebook is a client of comScore, and also noting that Facebook does not receive revenue for these "word of mouth" ads, which are known as "earned media." Facebook also stated that another comScore study indicated that Facebook "premium" ads, which are paid for by advertisers, resulted in higher sales for an undisclosed retailer.
I believe that Facebook's greatest asset is its ability to target narrow groups of users for advertisers. For example, if you want to target users who say they live in the zip code 90210, and are fans of the TV show 90210, you can do that. In case you wondered, 200 people fall into this obscure category. For readers who have not seen a Facebook ad creation screen, a portion of one is in the image below.
Despite this advantage, in my opinion, Facebook's biggest challenge can be summed up in an acronym you may likely hear on 90210: TMI. Various initiatives of Facebook seem to be providing users and members of the public with too much information, at a time many users may already be overwhelmed with information. I've outlined 3 major information-related potential challenges below.
TMI Challenge #1: The Facebook News Feed
Facebook seems to recognize that it's harder to stand out in the news feed these days. Presumably, that's why they launched a test program, as reported by the BBC in May, to charge users to "promote" their posts so that more of their Facebook friends will see them. In theory, users could pay to have important messages such as a birth announcement stand out in a sea of other friends' Farmville updates. But that leads to the question as to why anyone would pay for that when they could just email all of their contacts for free with the good news and avoid Facebook altogether?
The second problem is that Facebook wants us to put more information in users' news feeds! In a scrapped video that was originally part of its road show presentation, Facebook highlighted its Open Graph platform, which allows users to send information from other apps to their Facebook Timelines. As just one example, if someone listens to a song on Spotify, the details can be sent to their timeline, and then to their friends' news feeds.
If everyone started sharing everything, that would water down the news feeds even more. Of course, you can always opt out of receiving information from certain individuals or applications. But opting out requires seeing information you did not want, and then clicking to opt out of similar information in the future. Facebook also indicated that Facebook is designed to get the information that is most important to users. However, if everyone was announcing publicly every song they listened to; news article they read; and restaurant they ate at, it seems difficult to imagine what sort of algorithm could calculate which of this information members of a person's social network actually want to see.
As mentioned earlier, the news feed is where Facebook is placing ads on mobile, and one of the places ads can be placed on PCs. It seems Facebook wants to put more information and ads in places that may already have too much information.
TMI Challenge #2: Anonymity
The prospect of not having to log into every web site you use with a different password is convenient and a good idea. The problem is that on many message boards, people want to maintain anonymity. Some times this is for good reasons, such as a person not wanting to share their political views, and then have those opinions broadcast to the world via search engines. Other times it may be for more nefarious purposes, such as some people wanting to post sarcastic comments when a news reporter falls down on YouTube.
The good news is that the lack of anonymity may discourage some people from logging into another web site's message board using Facebook, potentially resulting in more information flooding their friends' news feeds. The bad news for Facebook is that other web browsers such as Yahoo (YHOO) and Google (GOOG) also provide the same opportunity to log into many web sites using their respective accounts. As many readers of this article may be aware from reading Yahoo Finance, there are plenty of Yahoo accounts where people use aliases. This may be an advantage for Yahoo as users may elect to use existing Yahoo aliases to log into other web sites rather than create a Facebook alias, which may require more work.
TMI Challenge #3: Facebook Will Be Handing Valuable Information Over To Apple When iOS 6 Comes Out In The Fall.
At Apple's (AAPL) Worldwide Developer Conference held two weeks ago, Apple announced greater Facebook integration with Apple's upcoming iOS 6 mobile operating system. Now, all of your Facebook contacts can immediately become iPhone contacts. Which is helpful for anyone who has listed their email address on Facebook. Perhaps this may explain a reason Facebook has recently added Facebook e-mail accounts as the primary e-mail addresses listed for its users, without asking for their permission.
Apple also announced the ability to stream photos from an iPhone to your contacts. So, again, you can send emails or photos to many of your Facebook contacts without using Facebook. Further, Apple recognized that you may want to receive emails from "VIP" contacts in priority to other contacts.
In other words, Apple recognized the importance of simplifying information at a time when we are inundated with emails, text messages, Tweets, voice-mails, and Facebook notifications that 50 people also said "Congratulations" to that friend who just had a baby.
This attempt at simplification by Apple comes at a time that Facebook is trying to encourage people to sign into more services using Facebook. It also comes at a time that Facebook is trying to convince users to add even more information, such as their entire life history, into the relatively new Facebook Timeline.
Facebook has an advantage that in the short term, it has an ability to precisely target users for advertisers in ways unimaginable about 5 years ago. This is because users have provided information to Facebook in quantities also unimaginable about 5 years ago. That said, investors may want to consider whether Facebook's collection and sharing of information eventually leads to a "law of diminishing returns" effect. It will be interesting to see if the wealth of information Facebook has collected becomes viewed by many users as too much information, leading to a potential decline in usage where the company is no longer able to target specific users to the same degree it is able to do so now. Accordingly, investors may want to consider the long term effects of all the information Facebook may want us to share versus its ability to maximize ad revenue over the short term and longer periods of time.