Please Don't Do This, Facebook

If you've been even remotely following the fiasco that's been Facebook's (Nasdaq: FB  ) short life in the public fast lane, then you're well attuned to the fact that the social networker makes little to no money on mobile as of yet. 

Question

Answer

Does Facebook make much mobile money?

No

Source: Author's calculations.

Of course, Mark Zuckerberg is also even more aware of that reality, but remains confident that Facebook will be able to successfully monetize mobile usage of its service.

It begins
Starting in March of this year, Facebook began rolling out Sponsored Stories throughout the news feeds on its mobile apps as the first step toward monetizing its popular app. Through the first half of the year, this only brought in a "small portion" of revenue. On the conference call, Zuckerberg said that by the end of June, mobile was generating a run rate of approximately $500,000 per day, and that social ads perform better than nonsocial ads.

Question

Answer

Are social ads more effective?

Yes

Source: Because Zuck Dawg says so. Deal with it.

This makes sense, and is why Facebook has such a unique place in the ad market as the largest social network ever known to man. COO Sheryl Sandberg called it "word-of-mouth marketing at an unprecedented scale." After all, if one of my closest friends or family members "likes" a brand page, I'm much more open to considering it than if I'm being pitched purely at random, much like the annoying display ads on how to get killer abs it used to display on the side panel on its site.

Those ads had notoriously low click-through rates because -- let's face it -- that six pack will never materialize based on how many times you click through. Trust me, I tried:

Times Clicked Through

Killer Abs Achieved

4

0

596

0

249,689

0

1,553,681

0

Source: Author's imagination.

Social advantage: Facebook
That's also why Google's (Nasdaq: GOOG  ) click-through rates on search ads are so superior, since when you go to the search engine to look for something, it knows exactly what you're looking for and can subsequently get paid to pitch to you. Google is certainly trying to get in on social with its Google+ network, but its monthly active user base still lags. A Big G exec recently disclosed that Google+ is now up to 100 million MAUs, a far cry from Facebook's 955 million MAUs.

Social ads are a unique proposition that Facebook can offer to advertisers, so when I started seeing Sponsored Stories in my own mobile News Feed, telling me that my cousin "likes" Samsung Mobile USA or that my best friend "likes" Duracell batteries enough to "like" its brand page, I wasn't too concerned.

Source: Social ad from author's mobile news feed on Facebook's app. Name blurred to preserve friend's dignity.

At the very least, I now get to interrogate my friend as to why he's so passionate about his brand of battery and ask why he's picking a fight with the Energizer bunny (my money's on the bunny, I hear it has incredible stamina).

I figured that Facebook's gotta make a buck or two for itself somehow, considering its service is "free and always will be," so a little bit of relatively unobtrusive social advertising didn't bother me much. So long as Facebook is able to successfully walk the fine line of sponsored advertising without offending users, it won't hear a complaint out of me.

That was until I saw this:

Source: Non-social ad from author's mobile news feed on Facebook's app.

Brazil Resources is a small foreign company whose shares trade around $1 on the pink sheets. Translation: it's a penny stock.

What ever happened to social?
Unsurprisingly, Facebook has used its magical powers of deduction to figure out that I am indeed interested in stocks. It then decided it was a good idea to advertise Viral Stocks, a penny-stock newsletter, to me. Unfortunately, there's no social aspect of this ad. Most of my friends aren't interested in stocks, especially those of the infectious type, and I wasn't shown this because any of my friends had "liked" the Viral Stocks page.

Viral Stocks is a run-of-the-mill penny-stock-pumping service, which will disseminate news releases for $3,000 a pop. Bulk buyers are treated to a discount, though -- $10,000 for four releases! Here's an actual example of the service's "proven results" for Prosperity Goldfields earlier this year:

Source: Viral Stocks. Author realizes that $0.70 represents a return greater than 20%, but Viral Stocks evidently does not.

Facebook is just taking an educated guess that this ad might be remotely relevant to me, and it's very mistaken. The irrelevant display ads on the side that it used to show me were at least easily ignorable thanks to my practiced disregard of banner ads. Placing a rather large, non-social, and particularly obnoxious Sponsored Story directly in the news feed is approaching the point of putting off users.

Perhaps this was the work of Facebook Exchange, the company's new bidding system for advertisers to bid on highly targeted display ads that launched earlier this month. Or maybe it was just a shot in the dark. Either way, I'm not liking it.

Please, Facebook. Don't do this. Otherwise you're just going to become the social penny stock spammer of the 21st century.

I've always seen a lot of potential in Facebook's future, but these annoying ads risk alienating users and potentially jeopardizing its mobile future. Grab a copy of this premium report to read all about Facebook's biggest opportunities as well as its most prominent risks. Sign up today and get regular updates at no additional cost.

 

Evan Niu, CFA, has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (24) | Recommend This Article (69)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 27, 2012, at 6:10 PM, classicshar wrote:

    Sad to realize you are so slow at recognizing the lack of integrity or viability in anything Facebook! it is gossip, intended for gossip, and, as such, even if you think your cousin is a Duracell lover, you might be surprised to find he's also likes SONY batteries, or every other one! Facebook has no method or system to check integrity, duplicate 'likes''; liking of multiple brands of same products, etc. A LIKE is nothing more than an acknowledgement that I 'saw' you, in most cases. Advertisers beg you to like them with free gifts, points, etc.

    Facebook is a gossip, pure and simple. the sooner it falls ALL the way down, the better off everyone will be. too many people are too naive to figure out how convoluted and ripe with 'lies' and half-truths (or fraud) that it is.

    OH, that viral stock ad; there will be many more. As each time you are seen in someone's network who has any tie to any form of stocks, you'll get zapped. Talk about ethics.....I would think the SEC and others would get a bit upset if they understood how all this is going down.

    Please, Facebook...don't do this, or anything but die! Let's get the world back to working, not pushing like buttons and continuing the gossip around the world.

  • Report this Comment On September 27, 2012, at 6:18 PM, GreeneWK wrote:

    Went from $0.50 ro $0.70, "up 20%."

    Don't trust any ad that cannont calculate correctly and say that this was pumped up 40%, not 20%.

  • Report this Comment On September 27, 2012, at 6:29 PM, TheRealRacc wrote:

    Here's a shot in the dark from my blind opinions I like to make: I am pretty sure Facebook plays a weird, twisted role in lowering the productivity of the middle-class. I fear what penny stock potentials will do to the unwise.

  • Report this Comment On September 27, 2012, at 7:12 PM, zymok wrote:

    Very amusing article. Thank you.

  • Report this Comment On September 27, 2012, at 7:51 PM, cunningstunt96 wrote:

    Since timeline and targeted ads most people i know now do not bother with their facebook, i personally deleted my account due to lack of privacy and now i just using twitter with my friends cos they have migrated there

  • Report this Comment On September 27, 2012, at 7:59 PM, 102971 wrote:

    This shows the pathetic levels to which Facebook will drop to squeeze out some income. The penny stock ad should have never been allowed. I have never, nor will I ever, use Facebook and I didn't need this article to tell me why. I made my biggest profit this year going short of the stock on the first day. I'm even inclined to go short again at the current level. This is a company that has no realistic business plan and it would not surprise me to see it go into bankruptcy within three years.

  • Report this Comment On September 27, 2012, at 10:01 PM, somethingnew wrote:

    Everytime I go on Facebook, which isn't very often anymore, there's always at least one ad with something to the effect of "Warren Buffett can't pick stocks, See how the rich really get rich!" or some ad at least mentioning Buffett's name and relating it to some investment service. I like Warren Buffett but I don't think facebook understands it can't sell me on an impulse buy. It's not like I see the words "Warren Buffett" and react to it like I would if I were going through the line at Walmart and decided to buy some Rolos on the spur of a moment.

  • Report this Comment On September 27, 2012, at 10:31 PM, magystic wrote:

    I have yet to experience ads for Penny stocks. Or perhaps I ignore them because I'm too busy looking for art postings that come from friends of friends of friends sometimes and blow my mind. It also blows my mind that a company with so many, uh, clicks, or click-thrus, well, if I go out checking out posted pix that go on forever, I am still on the network. I think I have to withhold comment or judgement on Google "Circle" which don't appear to be the same thing.

  • Report this Comment On September 27, 2012, at 11:33 PM, eldetorre wrote:

    Facebook should offer the option as a user to pay for an option to be AD free/ annoying social game free etc.

  • Report this Comment On September 28, 2012, at 3:20 AM, Gerard110 wrote:

    Excellent GreeneWK, it's reassuring to see at least someone can calculate numbers, so there is hope.....

  • Report this Comment On September 28, 2012, at 10:11 AM, dinwiddie wrote:

    Facebook allows you to hide an ad, but that same ad will come back to your screen in short order. Do they not track this stuff, or just don't care? Perhaps they don't have enough ads to fit my profile, so they keep showing me the stuff I have said I don't like.

  • Report this Comment On September 28, 2012, at 11:20 AM, WhidbeyIsland wrote:

    And Facebook is different from the Motley Fool how?

    Silly intrusive ads for dubious products? Check.

    Lots of pointless gossip? Check.

    And so on.

  • Report this Comment On September 28, 2012, at 11:39 AM, truman1987 wrote:

    Evan, thanks for the stock tip! I just picked up some Brazil Resources at a dollar and it is already worth a buck ten. That represents a return of almost 40%. I just might pick up another 10 shares tomorrow.

  • Report this Comment On September 28, 2012, at 3:07 PM, mikecart1 wrote:

    "Does Facebook make much mobile money? - No"

    Does Facebook make any money? LOL!

    Facebook may be the ultimate exception that will be studied 10-20 years from now in Harvard Business schools and others for a long time. Whereas 99% of a business's problem is generating a larger customer base to make more money, Facebook has the largest customer base in history and makes very little money. LOL at Mark Zuckerberg.

  • Report this Comment On September 28, 2012, at 7:50 PM, wjcoffman wrote:

    "i personally deleted my account" - bet you didn't.

  • Report this Comment On September 28, 2012, at 8:19 PM, jm7700229 wrote:

    I personally never signed up for Facebook. They've had privacy and integrity issues from day one. But Congrats to FB: almost a billion people have opted to have no privacy. There's one born every -- second?

  • Report this Comment On September 28, 2012, at 9:44 PM, pauldelang wrote:

    I have had some stuff pitched to me by FB "friends" who apparently liked it. On closer questioning they did not "like" it or "recommended" it at all. It is just FB's way of grabbing your attention by pitching stuff to you as if it was liked or recommended by a FB friend.

    I think it amounts to false advertizing but most probably somewhere in the privacy settings or terms of use there will be something where you consented to FB using your name to pitch their advertizer's stuff to your friends as if you have liked or recommended it to them even though you didn't.

  • Report this Comment On October 05, 2012, at 12:07 PM, BlueOrange79 wrote:

    I like Duracell too...^---^

  • Report this Comment On October 05, 2012, at 12:28 PM, wyrdmage wrote:

    There are few products on the planet that a billion people use every day. Facebook is a risky investment (mostly because no one has yet determined how to make it motivate people to pay money), but I think it is likely to return a great deal on my meager investment. I bought the stock because "billion" is too big to fail (people support the product even with less than adequate business management), but I went in small because it is a guessing game.

  • Report this Comment On October 05, 2012, at 12:48 PM, bezly wrote:

    There's a fundamental concept I think you got wrong here.

    Facebook didn't decide that these ads are of interest to you -- they simply provided a platform for an advertiser to run ads on.

    Example: Let's say I have a pizza restaurant. Facebook would allow me to set up an advertising campaign targeting people who have shown an interest in stocks or finance.

    Do people who have an interest in stocks also have an interest in pizza? I don't know. (Probably, because who doesn't love pizza? Yum, Pizza.) Anyway, it was the ADVERTISER who made that decision, not Facebook.

    Now, should Facebook have some sort of algorithm which determines relevance and then decides whether the advertiser should be allowed to run his campaign? Probably, Google does this in different ways. However, I'm guessing right now Facebook is will to take whatever revenue it can get.

  • Report this Comment On October 05, 2012, at 7:00 PM, trurl9 wrote:

    Evan,

    Amusing article. What is Facebook? Joking. I have long calls in case Zuckerberg figures out how to mint money.

    Could you please spell out acronyms on first use? What the heck is a MAU (Monthly Active User)? I found numerous uses of the acronym:

    Acronym Definition; MAU: Monthly Active Users: MAU: Multistation Access Unit (token ring) MAU: Medium Attachment Unit: MAU: Air Mauritius (ICAO code) MAU: Media Access Unit

    Thanks

  • Report this Comment On October 06, 2012, at 12:57 AM, anuvaka wrote:

    FB lacks the Rasberry, the "I Don't Like this, take it off my list." (as does TMF)

    Telling FB you don't Like penny stocks would help their advertising, be a more correct target and make them more money from a 'click-read-buy' plan.

    Do I think this will happen? The Fool has rejected this idea for years, why would Facebook be different?

    jC

  • Report this Comment On October 06, 2012, at 4:06 PM, Archaeologist77 wrote:

    Facebook is just a really big version of this comment board, but we FB users can see each other's faces, not to mention chronologically organize every post. Looking forward to the day when The Motley Fool will run on the Facebook database of 1 billion users and growing. I'm among those who predict that the Facebook database will be with human race until the end of the human race; we can be certain of that. the User interFace will change though to keep the trendy "cool" aka Forbes-types happy.

  • Report this Comment On October 08, 2012, at 7:30 PM, Borbality wrote:

    I keep flagging all the advertisements that come from my "friends."

    I like to click "I find this offensive."

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