Tuesday, January 03, 2012

Facebook Valuation

Facebook is coming up with mega IPO. In today's tepid market, such IPO is definitely going to create buzz. Very few companies have apatite to enter such markets for fear of valuation. Other company which had entered such chaotic markets of 2008 was Visa. Similarities are easy to locate- monopoly businesses which are not much affected by competition and economic conditions. Even in India, one of big IPO expected for the year is of the credit rating agency. Nice to be in such businesses in turbulent times!

But that's not the point I intend to talk about in this blog. I am sceptical about Facebook valuation. I haven't read prospectus of the IPO, so some of my assumptions could be wrong, but I doubt if Facebook really be able to make the amounts of money as the i-bankers claim. This is based on my personal experience in advertising. If I want to spend my advertising budget, I would rather spend on Google rather than Facebook. Let me explain you why, based on my personal experience.

Google advertising helps a business connect with person, when he or she is exactly looking for the services offered by them. When a person Googles something and a Google Adwords ad pops up, people tend to click on such ads. Even though people are aware that they are paid ads, they are at least assured that the site would be related to what they are looking for. So the Clicks are more likely to result in conversions. Money well spent.

On the other hand, Facebook ads appear on the side of your Facebook page, you tend to ignore it. At least I do. I have hardly ever clicked on ads. And even if I click on ad, I may not actually use that service as I am not looking for it. So conversion rate is low. It becomes more of passive advertising creating awareness. Mind you there may be millions of people on Facebook and millions of organisational pages on Facebook, but it doesn't make money as long as people pay for putting ads for this vast database. There was nice article in WSJ enunciating how Ford used Facebook for its car campaign, without actually paying much to Facebook (n in fact ending up paying its competitors Google and Yahoo).

To increase business for our company, I tried advertising through both Google Adwords (Thanks Kaushal for suggesting) and Facebook for our website, dial4cleanhome.com. In Google Adwords I put various keywords related to our business and we get good number of hits with conversion. So we are still continuing with Adwords. Facebook on the other hand was money gone down the drain. I defined target customer set- people based in Mumbai, age group n all (Facebook provides awesome targeting options, really pinpoint targeting is possible). But conversions didn't take place. Of course, it might have created awareness or services offered were not compelling enough to prompt quick sell. But bottom line is I didn't see any returns on my money. So since then, it's only Google Adwords where I put my money.

Of course there could be businesses for which passive advertising is important. But I still feel that advertising on Google is much more sensible option than Facebook. So Facebook may be having this huge database, but I doubt their capability to monetise it. So till they crack that riddle, Facebook would remain bubble!