Facebook IPO Will Help It Compete For Revenue With Google

Buzz that Facebook will file for an initial public offering (IPO) today has experts in marketing and advertising expecting the social network to turn up its challenge to Google at a time when the search giant is trying to ramp up its own ad targeting efforts.

While Google has commanded the market for search advertising for a decade, the company has not made the headway it would like in display advertising. This is where Facebook is cruising, according to the Wall Street Journal, which cited comScore statistics that the world’s leading social network enjoys 28 percent display ad market share, up from 21 percent the previous year. Google has less than five percent market share.

Large Like potential

Some marketing analysts claim Facebook has yet to tap its large potential in generating dollars from all of its millions of installed Like buttons. The company’s 2011 ad revenues are estimated to be in the range of $4 billion, compared with $40 billion for Google. An IPO will bring an infusion of cash, positioning Facebook for some crucial strategic investments in the United States and abroad, where the bulk of its user base of 800 million people exists.

Forrester Research analyst Nate Elliott said that despite claiming 96 of the top US 100 advertisers, most large brand marketers have told him they have not gained much value from their ad investments on Facebook. Moreover, user engagement on branded pages is declining for a company that researcher Nielsen said commands seven hours of user engagement per person per month.

“Facebook can – and must – do much more to turn the data it has on users into effective ad targeting,” Elliott wrote in blog post. “And it must build or buy much better tools for building, managing and measuring branded pages.”

Elliott noted Facebook would benefit from buying a demand-side ad platform – Google acquired Invite Media in 2011 – as well as social analytics and marketing companies that could help Facebook monetise branded pages. Facebook could use these assets to bulk up ad targeting on its own properties, as well as to those all over the Web.

Elliott is not the first analyst or pundit to suggest this. Search expert John Battelle has long suggested Facebook might build a “FaceSense” third-party ad platform to rival Google’s own AdSense platform.

However, Elliott went further, arguing that he expects Facebook to compete with Google on targeted ads in the next two years. “If they’re not competing with Google in this space – if Google walks away with this opportunity unopposed, as it currently looks could happen – then Facebook will have missed its single biggest revenue opportunity.”

Meanwhile, Google is not idling at the curb. The company’s Google+ social network, its answer to Facebook’s worldwide social media domination, will not be mistaken for Facebook today.

Even so, it has got a growing user base and is becoming increasingly intertwined with Google’s existing Web services.

Google appears to be positioning Google+ and its Web services for better ad targeting. The company recently said it will unify its privacy policies, allowing user data from individual user accounts to be shared across several Web services. Ideally, Google will be able to take this approach for better ad targeting.

Facebook’s emergence as a player on the public market should, at the least, make the advertising and branding market more interesting.