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Pay to play on Facebook

posted 20 Sept 2012, 16:14 by Mpelembe   [ updated 20 Sept 2012, 16:15 ]

Facebook will start to charging businesses to run promotional offers- generating cash to please investors and analysts looking for new revenue sources.

USA-FACEBOOK OFFERS - Facebook is changing its game plan, telling advertisers it is time to pay to play if they want to keep using the Facebook promotional Offers service.

It's the right move according to Wedbush Securities Michael Pachter.


"I think that if you kind of sum up the success of Living Social, Groupon, you can see the potential for Facebook to really generate quite a bit of revenue. We forecast in our initiating coverage report that they were going to generate about $3-4 billion annually in revenue from targeted ads and this is the type of ad targeting we are talking about."

Offers allows merchants to send deals to their Facebook fans, who can not only claim deals, but also post them for their friends to see. That creates a relationship between them that is quite different from daily deals sites like Groupon and Living Social that send out emails.

It's been free, but now Facebook will require merchants to pay at least $5 on related ads to promote it.

Not only does this bring in new money- it's a service that has mobile appeal.

Morningstar's Rick Summer:


"When we think about this very specific advertising unit being an offer it's not going to matter whether it is mobile or whether it is desktop. Arguably people would actually redeem more over mobile but the point is that we have a very specific advertising product that can actually generate money. "

Investors and analysts have been wondering when Facebook would come up with new ways to make money. Its stock is down about 40 percent since it went public.


It also needs to compete with internet ad giants like Google, by capitalizing on what it does best:


"They need to highlight the value of their social graph, really have more expensive ad units, meaning you have to be able to access that Facebook social graph, pay to get to the Facebook users. If you are going to pay more for that clearly you are getting more value from that. That's a way of differentiating the Facebook advertising inventory versus the rest of the competition."

Facebook hasn't released any numbers on how many offers have run, or been redeemed. But analysts say if they are raising the stakes, it's a safe bet the program has been going well.

Bobbi Rebell, Reuters.