What I Missed About Facebook (DD)

by , Featured Contributor, November 10, 2016


I’m awful at buying tech and digital media stocks. I am seemingly averse to making money that way, even when the winners appear right in front of me.  


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In 1995, while selling ads for Newsweek, I had a meeting with Paul Pappageorge, a brand manager at Apple.  At that time, everyone in the business world was clicking through windows on PCs, while Apple owned the education market.  


As I made the turn towards “1 Infinite Loop,” it was the first time I saw a company with a campus.  It was the first time I heard an employee talk about his company’s product as if it were his own child.  It was the first time I heard someone working at a company sound like they were part of a movement.  I knew right then Apple was going to become Apple — and, nope, I didn’t buy the stock.


In 2001, as the dot-com bust dust was settling, I sat in my broker’s office and watched his “told you so” smirk convince me to dump everything to save face.  I told him I wanted to hold onto Healtheon (WebMD) and Amazon. He told me I didn’t.  Of course I listened to him.


In 2006, an executive at a traditional publishing behemoth asked me, if money was no object, which company they should acquire. I said “LinkedIn.”  Didn’t buy that stock, either.


No one will confuse me with Brian Wieser or Peter Stabler, but I can pick successful digital media companies because I live in this space and understand how ads get sold day-to-day and quarter-to-quarter.   The company I totally swung and missed on, however, was Facebook.   


I thought Facebook would be another new media company set on taking good old TV dollars away from the networks, only to come up short.  I thought big brand advertisers would love the idea of advertising on Facebook, but not the execution.  I also figured once teenage users started bailing on Facebook because their moms showed up, the company and the stock would fizzle.  


What I didn’t see was Facebook’s play for ad dollars from the small businesses that have fueled Google’s success. In a good business year for a magazine, a consumer title may carry 300 different advertisers in a year.  Facebook has over 2 million.


Your local landscaper, salon and deli, as well as thousands of online-only entities, use Facebook as an interactive storefront.  They are on Facebook every day publishing updates on their product or service while responding directly to customer comments.   That’s what I missed and the key to Facebook’s success: The people buying Facebook advertising are constantly on Facebook.  


The reports they see telling them their ads are “working” validate what they see with their own eyes when they see their own ads.  They feel they have arrived as a business when that happens.


The same reason why Facebook is succeeding is why Twitter is struggling.  Small-business advertisers don’t use Twitter, so ads on Twitter appear less valuable to them.  Then consider that the effective cost per click for Twitter ads is much higher than search ads on Google, and you can see why Twitter is the odd man out for small-business advertisers.


If Facebook’s 2 million advertisers ever averaged $2,000 a month in ad spending, FB would earn $48 billion dollars a year.   If Facebook ever created a TV-like commercial users agreed to watch once a day to use the site, it would have the reach of 10 Super Bowls every day of the year to sell to national brand advertisers.  


I don’t visit Facebook. I stopped cold turkey in May and have not looked back.  I won’t buy Facebook’s stock either — but for those who do play the ponies, the upside to Facebook’s revenue continues to climb.



 


MediaPost.com: Search Marketing Daily

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