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Facebook Inc (FB) to Advertise on Your Newsfeed?

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Everyone gets annoyed at advertisements on their favorite sites, but the ads just keep coming. No matter where you go anymore, chances are you will be greeted by several ads with promising results. However, rumor has it that Facebook Inc (NASDAQ:FB) is now allowing advertisers/marketers to place their ads directly onto users news feeds. The question of how this will affect their users will likely remain for a while, but lets look at how this could affect the company.

Facebook Inc

It was rumored for a while that Facebook Inc (NASDAQ:FB) would take after Google Inc (NASDAQ:GOOG)‘s advertising method of YouTube. YouTube allows thirty second videos that users can skip after just five seconds. YouTube alone generated nearly $2.7 billion for Google Inc (NASDAQ:GOOG) in 2012. Facebook generated under $5.1 billion last year with just over 84% of that derived from ads. There is one major difference between Facebook’s ads and YouTube’s ads. Facebook’s ads are there to make money, and so are YouTube’s; however, YouTube is geared to direct users to other services offered by Google. Facebook Inc (NASDAQ:FB)’s ads do not direct you to other Facebook services, simply because they don’t have any other services.

So, what did Google make on ads last year between all of its services? “Just” $42.4 billion. Interestingly, Google also derives just over 84% of its revenues from ads. So will Facebook really benefit from allowing ads to be placed in their users news feeds? Initially, probably. Long-term? Probably not. Users are already annoyed with the bombardment of advertisements they receive, and will not enjoy them being placed involuntarily into their news feeds. Will users leave? Time will tell.

Now, while Facebook Inc (NASDAQ:FB) doesn’t offer other services, they do offer games. People love games. Executives from Facebook have revealed that game developers generated approximately $2.8 billion in revenues last year. Last year Zynga Inc (NASDAQ:ZNGA) generated nearly $1.3 billion in revenue. When people play games, they receive ads for other games, often based from the same company. This is a similar approach to that of Google. 47.6% of Zynga Inc (NASDAQ:ZNGA)’s revenue are generated from just three games: Texas HoldEm Poker, FarmVille, and CityVille.

Statistics show that over 250 million people play games on Facebook each month.  Last month, 263 million clicks were redirected from Facebook to Apple Inc. (NASDAQ:AAPL)’s App Store and Android’s Google Play store. So how many more people are installing games? 75% more. Facebook currently has over one billion users a month with access to over 200 games. There has been a 24% growth in people that use Facebook Inc (NASDAQ:FB) games since last year. The largest part of this is likely due to the structured ads on these games.

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