Could Advertising Risks Threaten Facebook’s Success?

(eToro Blog) The countdown for Facebook’s IPO launch on the NASDAQ continues (T-minus 2 days and 3 hours, give or take a few minutes) and spoilsports are already practicing their “I-told-you-so” speech, ready to whip it out at the first sign that the social media giant won’t be able to raise the targeted $100 billion at the launch. Some critics are arguing that Facebook is a fad; a point invalidated, says Facebook wunderkind Mark Zuckerberg, by the site’s 900 million global users. That doesn’t mean that the IPO launch is going to be a walk in the park either say analysts, who list a whole host of challenges that Facebook will face as it strives after the launch to maintain its share price.

Certainly, advertising revenue is going to be among its largest challenges. Martin Sorrell, the chief executive officer at WPP, which is considered a bellwether in the advertising industry, agrees that 900 million users don’t constitute a “passing fad,” but he points out that one of the problems with advertising on any social media website, not just Facebook, is interrupting a social communication which he says is always fraught with risk. Facebook execs argue that they intend to make changes that will make advertisements more engaging and relevant as they have argued that its revenue stream from advertising will be a key component to long term success. It would have to change for the better, critics insist, because historically, its advertising revenue stream has been weak.

That may be too little too late in one specific case. Just yesterday, General Motors confirmed an earlier Wall Street Journal report that they intend to cancel their $10 million worth of advertising on Facebook, noting that the paid ads didn’t have very much impact on consumers. A recently conducted poll of 1,000 Facebook users confirms that the majority of the respondents (57%) don’t click on Facebook ads ever while only about 4% say that they regularly do. Some experts believe that a click-through rate of 2 or 3% is the benchmark for banner ads’ effectiveness, however, and are not discouraged by those numbers. GM doesn’t intend to pull completely out of Facebook but says that they will limit use to their free Facebook page as the vehicle to maintain a presence and connect with consumers. Their point, in essence, seems to be why pay when they’re giving it away free?

On OpenBook’s NSDQ100, bears still dominate current sentiment but bulls are lining up ahead of the launch. That includes OpenBook trader cemara1, who will be moving away form his 100% allocation in the EUR/USD and is looking to buy NSDQ100 at 2,600, which needs only a small rally to get there. OpenBook trader saurabhtomar was able to profitable close a pair of trades in the past 24 hours, one long for an 8% gain and one short for a 28% return. A pair of long positions that were just opened are both in the red, and target 2627.50 and 2632.50.

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