With its public offering this May, Facebook went from the world's biggest social network to the world's most closely watched young company in America. But, really, even before it filed for its IPO back in back in February, Mark Zuckerberg and Co. had launched a fleet of new money-making initiatives to prove Facebook could generate as much in revenue and profit as it could in likes and shares. The official S-1 filing only created more pressure to turn its social potential into capital. So when the IPO turned as famously bad as it did — the new stock didn't pop, and shares continued to fall for weeks after — Facebook had some proving to do, this time with shareholders watching. Amidst all that, and largely because of it, the world witnessed a whole year of the social network working a delicate balancing act: Facebook has been trying to turn its billion-plus users into a billions-of-dollars money engine, but they have to do it without pissing everybody off. As we look back for The Atlantic Wire's Year in Review, the story of Facebook may have been the most watched business story this side of those pesky job numbers.
In 2012 Facebook launched over a dozen new initiatives to make money off of you — you being its product, of course. In its latest earnings report, the company reported total revenues of $1.26 billion, a 36 percent increase over the last year; total income came to a $59 million loss. Still, all the effort seems to have at least begun to pay off: Of that $1.26 billion in revenue, $1.09 billion came from advertising, 14 percent of which was funneled through mobile ads. Indeed, from Gifts to Pages — and, oh yeah, Instagram — this was the year Facebook proved it could monetize its empire, mostly through advertising, and even on your phone. Here's how.
January: Turning Likes Into Product Endorsements
At the beginning of the year Facebook introduced something called sponsored stories, which translated likes into personalized advertisement. So if a friend of yours likes, say, Starbucks — or the social-club startup Grouper, at right — his or her face now starts showing up next to a sort of reappearing ad for that brand's semi-personalized post in your news feed.
Yeah, but Did It Work? Eventually. The in-stream sponsorships finally provided a model for mobile advertising, which became a huge priority at Facebook in 2012.
February: Putting Bigger Ads in More Places
- Larger ads on the side of the Facebook home page that users see when they first log in
- Ads that run inside the Facebook news feed
- Ads on mobile devices
- Ads that appear when a user logs out of Facebook
- The ability to run video ads with all of the above
So, a lot of adds.
Facebook also launched a new photo viewer in February, and it took up a lot more of the screen — which meant, of course, more real estate for the ads next to them, as you can see in the photo below.
Yeah, but Did It Work? Facebook's most recent earnings report (from October) shows a 36 percent increase in advertising revenue from the same quarter last year. That includes all advertising, but more ads in more places probably helped bump up that number.
April: Buying Instagram
When all was said and done this landmark deal cost Facebook $715 million. But the social network spent all that money on this little photo-sharing app because it has a very big, very addicted audience that, one day in a mobile galaxy not too far away, the social network might monetize.
Yeah, but Did It Work? So far, so good. Facebook hasn't scared all the users off — Instagram's user base more than doubled, actually, from 40 million in April to 100 million in September — and just this week an executive all but confirmed that ads will be coming to Instagram feeds soon.
Facebook debuted on the NASDAQ May 18 at $38 and ended just a smidge above it at $38.23 — a big disappointment for a company that was supposed to be as big a market presence as Google. But Facebook pretty much had to offer itself up; it had grown too big not to go public, which is still probably a good thing. Despite all the hype — the excitement and the disappointment alike — that Facebook became a publicly traded company at all is the linchpin to its business year, and its profitable future.
Yeah, but Did It Work? Depends how you look at it. The stock started at $38 and closed Wednesday December 12 at $27.58, but it's been worse. What's more, the fact of the Facebook IPO will matter to the world — not just the business world or the tech world but the whole thing — for years to come.
June: Pulling Back on Sponsored Stories
After six months of turning "likes" into ads, Facebook had to change its policy because of some unexpected user interactions with the new sponsored stories. See, sometimes people "like" things not so much because they endorse them as they think it's funny. Take Nick Bergus here, who liked this 55-gallon tub of lubricant because it's hilarious, not because he thinks everyone should buy lube in bulk. Following a class-action lawsuit, Facebook had to change its policy to make it clear to like-ers that the social network could use their faces to to plug the product. In addition, Facebook now gives users the option to opt-out of sponsored stories altogether.
Yeah, but Did It Work? Eventually. Like we said, Facebook this year proved it could make money off these on mobile. But because of the suits, the social network will have to shell out some money — judge hasn't settled on an amount, but the latest offer comes in around $20 million. Lawsuits are always going to be a problem for Facebook, but not enough to offset its bottom line.
Early August: Gambling! (In England, but Still)
Yeah, but Did It Work? Not really. Gaming in general isn't doing as well on the site as Zuckerberg would have liked, he admitted during Facebook's last earnings call.
Mid-August: Throwing Pages in Users' Faces
Desperate to impress investors, Facebook started experimenting with something pretty controversial: they showed business Page ads to people, even if you didn't explicitly "like" a brand. Before, users could only see posts from those pages that they went out of their way to follow. Not anymore. It's still only in testing phases, but it hasn't gone over well.
Yeah, but Did It Work? Yes. The Pages move was part of the "agressive" ad strategy that lifted Facebook's from "no meaningful revenue" to $153 million in mobile ads — because they also show up in your cellphone stream.
Late August: Bringing Back Ads to the Search Bar
In which Facebook proves no piece of the website — not even drop-down search results — is sacred:
Yeah, but Did It Work? Marginally. Again, more ads in more places only gives Facebook more ways to charge advertisers.
Mid-September: Introducing the Ad Exchange
Since it began displaying them, Facebook put ads in front of you based on your personal information and your browser history. But the Ad Exchange now makes cookies and interests more important than ever, with a bidding system attached to higher-value CPMs, which is marketing gold.
Yeah, but Did It Work? Absolutely. Facebook Ad Exchange has made advertisers happy, reported Wired's Ryan Tate less than a month ago, and that's a big deal for a company that had started to scare marketers away, even as it tantalized them perhaps more than any other online space. Facebook hasn't talked much publicly about the numbers — or anything, really. But the insiders Tate talked to seem to think Ad Exchange has made buying the right kind of ads that much better.
Late September: Targeting Custom Audiences Ads and the Beginngin of Facebook Offers
As devilish as they sound, so-called "custom audience" ads target groups of people from companies' email listserves. The same day it unveiled them, Facebook found an easy way to make money, charging companies to sell their "Offers" on the social network — kind of like Groupon deals, only slightly less annoying.
Yeah, but Did It Work? Not just yet. Offers are a "viral hit," says Facebook. And those custom ads are "promising," says TechCrunch's John Constine, who looked at numbers from both Facebook and advertisers.
Later September: Turning Facebook into a Mall
Facebook launched Gifts, which let people buy real things on the social network. (Not just those weird virtual "gifts" it had back in the olden days.) That means that people can now buy their friends all sorts of things, such as Starbucks cards and teddy bears, for example. Also, at the end of September, in a minor effort to make it easier for people to pay for things (like its gifts), in certain countries the social network added one-step mobile payments.
Yeah, but Did It Work? Slow down. Gifts just rolled out to all U.S. users the other day. But, TechCrunch's Constine, in a different post, suggests it could become a business worth between $127.5 million and $1.02 billion. That's just speculation, though.
Later-Later September: Buying Your Offline Shopping Data
Partnering up with a company called Datalogix, Facebook got access to the real-life purchasing habits of a whole lot of people. The social network claims that it keeps everything anonymous, and so do the companies working with Datalogix.
Yeah, but Did It Work? Sort of. The deal itself won't make Facebook money, but it should win the company some leverage with advertisers. So far, it has only used the information for research on how its ads do or do not work, in an attempt to appease advertisers with clarity. Privacy advocates ... well, Facebook can never really appease them.
October: Turning Every User into an Advertiser
Facebook thinks some attention whores might pay to promote their own wall posts. For $7 a pop, you can push that important status update out to more news feeds. Of course, you have to live with yourself afterward, but at least the world read your stuff.
Yeah, but Did It Work? A little bit, at best. We were unable to find information on this. But if any people do it, it sounds like easy money to us.
Mid-November: More Tracking!
The social network expanded "View Tags," the program that allows advertisers to track Facebookers across the Internet using cookies. The little graphic below from TechCrunch shows how it works, basically. Also around this time, Facebook began offering a new option for retailers to track purchases made by users who viewed their Facebook ads, as an easy way to give brands more information about whether their ads are really working.
Yeah, but Did It Work? Yes, at least for some ad partners. One company, Social Code, found that only a small number of users who clicked on a brand's ad bought the product therein. But many more who had just viewed the ad — without clicking — also ended up buying the product. Without View Tags a brand might have assumed its ad didn't work well, based on the straight click-to-purcha
Late November: Brightening Up the Mobile Ads
With those in-stream mobile ads working so well, Facebook began testing more apparent mobile ads, with bolder photos and better descriptions.
Yeah, but Did It Work? It's hard to tell, since the spruced-up ads are still in the testing phase. But even with the earlier, less compelling designs, plenty of potential advertisers told TechCrunch's Constine that brands are "lining up" for mobile Facebook ads.
Early December: Mad Men-ing Facebook
Don't call it an in-house ad agency just yet, but Facebook is trying to help businesses make better creative: It just set up its own in-house design firm in New York to help marketers create more Facebook-friendly ads. Previously the company kept its designers out in Silicon Valley, but this move brought some of those people closer to the ad sales team, which makes a lot of sense.
Yeah, but Did It Work? Depends. Again, this is an indirect way to make money by attracting advertisers. But it can't hurt to have designers on the same coast as the people selling the ads.
Mid-December: Boozing Up Facebook
Along with the official rollout of Facebook Gifts came the announcement that the social network will facilitate the boozer in us all, allowing online wine transactions. For those over 21, the social network has linked up with a bunch of distributors to turn Facebook into a kind of virtual liquor store — without the hard stuff.
Yeah, but Did It Work? This went down just the other day. But it fits into that $127 million to $1.5 billion estimated value of the Gifts franchise. The more everyday things people can buy through Facebook, the more credit card numbers it stores on file and the more money it can make through direct sales — on or off your phone. Makes sense.
Mid-Mid-December: Monetizing Instagram
Amidst the whole Twitter-Instagram hubbub this past week came much more important news — not officially, although Facebook VP Carolyn Everson did confirm the inevitable: One day in some unconfirmed future, some sort of ads will overrun the beloved photo-sharing app, the buyout of which gave Facebook the two of the biggest Silicon Valley splashes of the year.
Yeah, but Did It Work? Uncertain. Facebook hasn't made any moves yet, but as with everything in mobile advertising, as long as invasive units don't scare off users, then the answer should be the same with everything Facebook: give me more.