Facebook's 84% Problem

Facebook posted it first quarterly earnings statement post-IPO yesterday and one number pops out: 84%. That is the percentage of revenue the company made from advertising, representing $992 million of the total $1.18 billion it brought in during Q2. To maintain stable growth, Facebook must diversify its revenue stream and become less reliant on advertising – a goal that has plagued competitors like Google for years.

Reliance on Ad Sales
Facebook’s traditional approach to advertising has been to target banner ads based on user interests. For instance, if a user “Likes” Star Wars, that user is likely to receive advertisements related in one way or another to science fiction. In theory, targeted ads are more valuable than the broadcast ads that dominated pre-Internet media. This has been the cornerstone of Facebook’s revenue and it is what launched the company toward its IPO. 

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