Will Facebook’s Face Lift Make It More Money?

There is potential for monetization, but also for backlash

   

After the disastrous Facebook (NASDAQ:FB) IPO in May, CEO and creator Mark Zuckerberg quickly changed his tune. His social media site was no longer about lofty ideals of changing the world. Instead, his two favorite words became “monetization” and “mobile.”

Zuck backed his talk up with a variety of money-making efforts, including Gifts and a new ad exchange market. Despite all this, he also understands that there is a tough balance between cash and “customers.”  If he annoys his huge user base, the impact could be devastating. Just ask other once-popular social networks like MySpace and Friendster.

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This fine line is what makes Facebook’s latest News Feed redesign a big deal. The company does not have the luxury of a start-up like Pinterest, for example, to make changes in the user interface without making monetization a priority.

At the same time, users are known for complaining about widespread design changes, as they did when the News Feed format debuted. With that in mind, let’s take a closer look at the new interface — and what it could mean for revenues and the stock.

The Look

The good news is that the News Feed looks promising. Here are some of the key changes:

  • Bigger Is Better: The photos are much larger now — and richer. This is good considering that roughly half of News Feed posts are photos. In fact, users upload 350 million photos every day! Even videos — a growing part of the site — will be larger.
  • Less Clutter: The News Feed also makes it easier for users to get the information they want. That is, they can create streams for certain topics and easily add filters. Zuckerberg believes that the updated News Feed is a next-generation newspaper.
  • One Size Fits All:  The mobile and desktop experiences are virtually the same, making the user experience more seamless.

The Revenues

So … what about monetization? Well, Zuckerberg provided only rough ideas, but each of these qualities of the News Feed does seem to have lots of potential to lift revenues. Take a look:

  • Bigger Ads: By having larger photos, there will be more room to flash ads — and ads users will not be able to ignore. Plus, the push on videos should also be positive. These types of ads — if done right — can generate fairly high rates. It should thus come as no surprise that there are rumors that Facebook will soon launch a video-ad system.
  • More Targeted Ads: At the same time, the improved filtering is likely to help with monetization since advertisers will be better able to better target ads to users.
  • One Size Fits All Ads: Finally, the desktop/mobile meld should be important since it will be easier for advertisers to create campaigns. In other words, there will not be a need to have different approaches for the desktop and mobile platforms. Consider that in the latest quarter, mobile revenues accounted for nearly a quarter of overall ad sales.

The Stock

Such potential is undoubtedly part of the reason that Facebook’s stock got a nice boost in the wake of the new layout. Despite that 4% gain, though, the stock has been a laggard for 2013, climbing only 6% year-to-date. Keep in mind that Google’s (NASDAQ:GOOG) shares are up 19%, while the broader market is up 9%.

Measured growth, though, is the name of the game for Facebook right now. If the company gets too aggressive with user changes and monetization efforts, it could have a severe negative impact.

In other words, it’s actually good not to see big jumps in the stock price at this point. A little change can go a long way, while too much can drive users away.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/will-facebooks-face-lift-make-it-more-money/.

©2014 InvestorPlace Media, LLC

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