Facebook's plan for mobile meets with skepticism

Karen Bleier / AFP - Getty Images

A view of and Apple iPhone displaying the Facebook app's splash screen.

By Roland Jones

With a growing number of users accessing Facebook using smart phones and other mobile devices, the social networking giant took steps this week to address what analysts have called its Achilles heel.

The social network said it will allow marketers to craft advertising destined specifically for mobile versions of its web service. It also plans to allow advertisers to place ads in users' news feeds.

Both initiatives are significant shifts for the company, which has until now restricted marketers? presence on certain parts of its service. But they are unlikely to do much to allay analysts? fears over Facebook?s money-making abilities.

Those concerns have driven the company?s stock price down some 30 percent since its initial public offering three weeks ago, reducing its market value by $30 billion to roughly $74 billion.

?As a marketer, I could tell you I have a great investment opportunity for you; I?m going to put a man on Mars, but if I haven?t done that yet, why should you invest in my project?? said Larry Chiagouris, a professor of marketing at the Lubin School of Business at Pace University.

?So I?m still not going to advise putting money in Facebook just based on what Mark Zuckerberg says he can do with the company, but hasn?t done yet,? Chiagouris continued.

The eight-year-old company that?Zuckerberg started in his Harvard dorm room?became on May 18 the first American company to debut at over $100 billion in value. Much of the excitement about its IPO came from its potential?reach; after all, it claims to have almost a billion users.??

Mounting worries about its inability to fully transform a growing mobile presence into ad revenue have helped wipe away about a third?of its value, however.

Shortly before the IPO, several analysts lowered financial targets for Facebook after it cautioned about its revenue growth due to the rapid shift by users to mobile devices.

Chiagouris and other experts believe Facebook will face difficulties deriving revenue from the growing number of Facebook users who access the site using mobile devices, through which Facebook receives much less advertising revenue than through a user who logs on using a desktop PC. In 2011, revenue from advertising represented 85 percent of Facebook?s overall revenue of $3.71 billion.

Eric Jackson, founder of Ironfire Capital, told CNBC earlier this week that he thinks Facebook will suffer the same fate as MySpace.

He predicts that Facebook will lose its dominance as a social network in five to eight years, citing as reasons the company?s inability to work out a viable solution for the mobile market and the stock?s slump since the company went public last month.

?MySpace is still around, but for most people it has disappeared,? he said. ?That?s what I see for Facebook; it won?t go bankrupt [?] something new will come long that we haven?t seen yet. People will be fascinated by it, and [turn] away from Facebook.?

Jackson argues that the evolution of the web has seen three separate generations. First came the rise of big portals, such as Yahoo, and then came web 2.0 and social networking, led by Facebook. The newest development of the web is all about companies purely focused on mobile and web apps, he added.

?No matter how successful you are in one generation, you don?t seem to be able to translate that into success in the next generation, no matter how much cash you have in the bank, and no matter how many smart PhDs you have working for you,? he said.

?Look at how Google has struggled with moving into social [networking]. I think Facebook will definitely have the same kind of challenges moving into mobile,? Jackson said. ?The world is moving faster; it?s getting more competitive, not less. And I think those who were dominant in prior generations will have a hard time moving into this newer generation.?

Pace University?s Chiagouris is more sanguine about Facebook?s prospects, but he says the company still faces major challenges in establishing a successful mobile strategy.

He notes that, while Facebook may claim to have 900 million users, a significant number of them open accounts but don?t use them. And, given that advertising on Facebook?s website is not visible enough to grab users? attention, he wonders how they?ll be more engaging on mobile devices, where there?s less screen ?real estate.?

?Even Google hasn?t managed to do this yet. They have not yet been able to produce the same return on mobile as they have on the desktop,? Chiagouris said. ?If I were going to invest in a company that I think will succeed in mobile, I?d invest in Google, or Apple. At least they have shown they can make a success of advertising on desktops.?

Facebook is definitely behind the curve when it comes to mobile advertising, but it can still catch up, said Debra Williamson, a social media analyst at eMarketer. Advertising on mobile devices is an entirely new field, she said, and the jury is still out on whether it?s likely to be successful.

?Right now, Facebook has no mobile ad revenue to speak of, so the only way is up for them,? Williamson said. ?Facebook needs to come out with some evidence of how successful this is.?

Facebook has one strong advantage, according to Chiagouris. Advertisers looking to buy space on Facebook?s mobile offerings could make use of the substantial and very detailed information that the social network has gathered on its users, which will help advertisers focus their messages and target potential customers.

But this advantage may not necessarily pay off for Facebook.?Privacy advocates and regulators are keeping a watchful eye on how companies collect and use customer data, particularly online, Chiagouris said.

?We don?t know if Facebook, or Apple and Google, will be able to take advantage of data because regulators have not yet come to an agreement on how data can be used,? he said, noting that privacy laws in the European Union, where Facebook expects significant user growth, are stricter than in the U.S.

?There are some in the U.S. who would like to see our privacy laws mirror those in the EU,? he said. ?So the potential here is huge, but realizing that potential will require a lot of progress from here, and a more favorable legal and regulatory environment will have to emerge.?

Reuters contributed to this report.

Eric Jackson, founder of Ironfire Capital, discusses the outlook for Facebook.

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