Facebook’s IPO filing with the SEC is about 170 pages long and contains tons of details on its advertising business.80-three per cent of Facebook’s $3.7 billion in revenues come from advertisers, and the social network spends another half billion a year promoting itself.
It is one of America’s largest advertisers, and largest ad sales businesses, at the same time.
We’ve boiled all that down to 12 crucial facts, numbers, charts and trends.
From CEO Mark Zuckerberg’s personal opinion on the role of his advertisers to the company’s fear of bad PR, here’s everything you need to know about Facebook’s ad business.
Facebook spent $427 million on marketing and sales in 2011, up from $184 million the year before. That growth rate suggests its sales and marketing will easily blow past the half a billion dollars mark in 2012.
In 2011 it saw a 46 per cent increase in the number of employees in global sales, business development, and customer service. (The company didn't give actual numbers.)
Ad revenue in 2011 was $3.2 billion, up 69 per cent from $1.9 billion in 2010. There was also a 42 per cent increase in ads delivered in 2011. The difference between the percentage increases occurred because there was an 18 per cent increase in the price of ads 2011.
This chart shows that the marketing and sales money it spends to attract advertisers is rising slowly but has remained a small portion of the money those advertisers pay Facebook.*
*Correction: Originally, this item said M&S expenses were declining as a portion of revenues. That was incorrect.
This chart shows that Facebook's ad growth is lumpy--and in some quarters it even contracts.
About 425 million people use Facebook every month on mobile devices--and they don't see ads. Facebook earns no significant revenue from its mobile apps on iPhone and Android. The company said this will be a drag on its future growth:
'Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.'
The only solution it has developed so far is, perhaps, the introduction of Sponsored Stories into users' mobile News Feeds: '... we believe that we may have potential future monetization opportunities such as the inclusion of sponsored stories in users' mobile News Feeds.'
But that's it.
The S-1 says:
'By advertising the release of Transformers: Dark of the Moon on Facebook, Paramount Studios reached 65 million users in the United States in a single day.'
The company currently generates 83 per cent of its revenue from advertising. But it says that business faces the following risks that could 'seriously harm our business':
- Decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook.
- The degree to which users opt out of social ads or otherwise limit the potential audience of commercial content.
- Whether users increasingly engage with competing products.
- If Facebook is unable to balance a compelling user experience with the frequency, prominence, and size of ads displayed.
- If there are changes required by legislation, regulatory authorities, or litigation.
'Unfavorable publicity regarding, for example, our privacy practices, product changes, product quality, litigation or regulatory activity, or the actions of our Platform developers or our users, could adversely affect our reputation. Such negative publicity also could have an adverse effect on the size, engagement, and loyalty of our user base and result in decreased revenue, which could adversely affect our business and financial results.'
In his letter to investors, Zuckerberg wrote:
'Most great people care primarily about building and being a part of great things, but they also want to make money. Through the process of building a team -- and also building a developer community, advertising market and investor base -- I've developed a deep appreciation for how building a strong company with a strong economic engine and strong growth can be the best way to align many people to solve important problems.'
'Simply put: we don't build services to make money; we make money to build better services.'
Much to the chagrin of the business press (guilty!), there is nothing in Facebook's numbers to complain about. It's profitable, it pays its taxes (nearly ($700 million last year), and it's growing. Even its net income is perfect: Exactly $1 billion -- no more, no less!
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