Why you Should Not Run Promotions on Facebook: Upcoming IPO

You see promotions all the time on Facebook.  Leave a comment on this status update and you might win a box of widgets.  Upload a photo of your pet lizard to our page and receive a box of crickets (yes, folks, lizards LOVE to eat crickets—just make sure the blasted things don’t leap out of the cage).  “Like” this post . . . .

I, for one, do not believe you should run promotions on Facebook.  You may wonder why.

By connecting us, Facebook has created something of value.  Over the last few years, Facebook has built a $3 billion-a-year advertising business by convincing major corporations like Ford, Kia and Procter and Gamble to pay for page space.  In turn, Facebook helps these companies generate buzz for their products.

Although still recovering from my stint as a big firm lawyer, I read the Wall Street Journal every day.  On Wednesday, May 2, 2012, the Journal ran an article titled,  The Big Doubt Over Facebook.”  According to this article, $1 million buys Ford 125 million views or user impressions.  The same investment on American Idol would buy only 2 30-second ads.

Ford researched how social media campaigns boost sales.  By using Facebook instead of TV ads during the Super Bowl, Ford increased shopping activity for their 2011 Explorer by 104% instead of the customary 14% increase that follows a Super Bowl television campaign.  Ford makes a strong business case for Facebook advertising.

The big question investors face as the planned May 18^th IPO approaches relates to valuing Facebook.  Is Facebook worth the $86 billion valuation it is seeking?  After all, Facebook has 900 million users.  It stands to reason that Facebook’s reach will result in a profitable advertising business—right?  Honestly, no one knows.  I will wager, however, that this question keeps Mark Zuckerberg awake at night.  After all, a recent Forbes article values his net worth post-IPO at $15.5 billion.

A lot of money is at issue here.  Facebook stands to gain or lose billions of dollars as a result of which ads its users view.  And Facebook alone controls how advertisements run on its pages.

Oh no, you cry: free speech!  When you are on someone else’s website, you must play by the website owner’s rules.  We play in Facebook’s sandbox for free.  In that sandbox, we are part of the greatest conversation the world has known.  Facebook has created tools to facilitate this conversation and it has cost the company a lot of time and money to develop these tools.  I know I have benefited immensely from the friends I have made and the thoughts we have shared.

In exchange for this, I know I am part of Facebook’s product.  Advertisers pay Facebook for a chance at catching its users’ attention.  Promotions run by a page divert that attention and dilute Facebook’s product. When you created your account or your Facebook Pages, you clicked “okay” after you skimmed your user agreement. In return, we agree not to do certain things.  Anna Gervai has written a helpful article on these rules as they relate to running promotions.  Personally, I have decided not to try to navigate these rules.  Instead, I will continue to participate in this great conversation.

Those are my thoughts, what are yours?