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Facebook will struggle to convince users of mobile and social ad credentials

Column Zuckerberg has frightened off too many users over privacy invasions
Fri Jul 27 2012, 16:57
V3 and The INQUIRER editor Madeline Bennett

THE LONDON OLYMPICS might be upon us, but in the technology world, the week has been dominated by some disappointing financial results.

Apple managed to amaze its fans and surprise investors by missing expectations. However, there's no need for panic yet that this is the start of a downwards spiral for the firm since losing Steve Jobs in late 2011.

Apple still managed to report a profit of $8.8bn in its second quarter, up 21 per cent from a year earlier, while sales came in at $35bn, up from $28.6bn in 2011. And I'd be willing to put a sizeable bet on the Iphone 5 release leading to a rapid switch between Apple and Samsung, which claimed the top smartphone seller spot for the second quarter, with Apple climbing back to the top of the pile as its fans rush to upgrade.

Amazon also disappointed with its results, posting a profit of only $7m on revenues of $12.8bn, which could create jitters among investors over the firm's long-term prospects if it continues to fail to convert sales into earnings. Unlike Apple, which can expect a turnaround for its next quarter with another shiny new device, the outlook for Amazon is not so rosy, as it will face stiff competition for its Kindle Fire tablet in its third quarter to wrench sales away from Google, which has recently released its sell-out Nexus 7 Android tablet.

But the most anticipated results came with Facebook posting its first set of results on Thursday since the firm went public in May. And the first showing wasn't good, revealing a net loss of $157m for the quarter, although Facebook dismissed this as investor payouts.

The stock market reacted badly to the news, sending its share price plummeting by almost 10 per cent to a low of $26.84 by the end of Thursday trading. In after-hours trading, shares dipped even further to $23.94. Compare this to the $38 Facebook shares were initially trading at back in May.

In the face of the drop in its share price, Facebook was positive about its position, insisting that it can make more money from social and mobile adverts.

The firm certainly has a big enough pool of users to dip into. According to its own figures, 955 million of us use Facebook on a regular basis, while the number of mobile users grew by 67 per cent. The problem is, newer web sites like Twitter are overtaking Facebook when it comes to user popularity, as its subscribers get turned off by its underhanded privacy tactics.

On a commercial level, Facebook suffered a blow just ahead of its IPO back in May, when General Motors revealed it was cancelling its ad deal with the social network because it wasn't getting value. Accounting for a $10m ad spend for 2011, this might not have been enough to hurt Facebook financially - a $10m annual deal is a drop in the ocean for a firm posting $1.18bn revenues for its second quarter - but on a reputation basis this would have stung at a time when the firm was trying to build up its advertising clout in the new social and mobile arena.

Facebook could cover both of these goals with its Sponsored Stories feature, unveiled last year. These posts basically let advertisers hijack users' posts about their brand and promote them to their network. So if I commented on the Coke page or checked into Starbucks, and those firms happened to be paid-up Facebook advertisers, my post would suddenly be highlighted to all my friends and contacts as a promotion for that brand, whether I wanted it to or not.

According to Facebook, these Sponsored Stories are already earning the firm a cool $1m a day, around half of which is mobile. The downside here is that this money-spinner pushes Facebook further away from its origins as a friendly network for its users into the realm of a corporate entity taking advantage of its subscribers. Facebook has already suffered a huge backlash against its privacy settings, which bubbled away under the surface before erupting among users. It's likely that as soon as Zuckerberg and company start trying to expand on Sponsored Stories, users will revolt again and insist on a measure to turn off the feature from their feed, rather than just being told by Facebook to stop 'liking' web pages or posting comments about brands if they don't want those to appear as adverts.

Another major hurdle for Facebook is the user experience on mobile devices. As anyone with an Iphone will tell you, using the Facebook app is at best trying, at worst downright painful. I still use Facebook, for a mix of business and personal tasks, but I tend to wait until I'm back at a desktop machine before attempting anything as 'tricky' as batch uploading images from a phone to the social network. Zuckerberg should take a lesson from rival Twitter here, as the micro blogging web site offers a better experience on mobile devices versus the desktop compared to Facebook.

Facebook certainly made the right noises on its investor call on Thursday by highlighting mobile and social as its two target areas for future revenues. But the firm has to overhaul its mobile app development and find the right balance between user satisfaction and commercial opportunities if it wants to achieve a more positive third quarter. µ


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