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Facebook Inc (FB)’s Balancing Act: The Good, the Bad, and the Ugly

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The good news: Facebook Inc (NASDAQ:FB) turned fabulously profitable in the just-reported second quarter thanks to a redesigned ad flow on mobile Facebook apps. Revenues jumped 23% from the first quarter to the second. Last year, the same comparison yielded just an 11% seasonal gain. The year-ago quarter’s net loss turned into a tidy profit.

FB Revenue Quarterly Chart

FB Revenue Quarterly data by YCharts.

In response, share prices jumped more than 30% overnight and sit very close to all-time highs that were set during the stock’s IPO.

Facebook Inc (NASDAQ:FB)The bad news: The ad assault is interfering with the user experience. A fresh survey (free registration required) from the American Customer Satisfaction Index shows Facebook dead last among online media sites in terms of user satisfaction. “Facebook users find the numerous changes to the site’s interface taxing,” says the ACSI. Twenty-seven percent of users surveyed complained that ads are ruining their Facebook experience these days.

The ugly news: The good news may not last very long. Facebook had better dial back the ad blitz if it wants those disgruntled users to stick around.

It’s a high-wire balancing act between monetization and user satisfaction. Lean too far in one direction, and you won’t make any money from those billions of page views. Err too far in the other direction, and those profitable page views will melt away as unhappy users find greener pastures.

Don’t think it couldn’t happen. Facebook is not too big to fail. Unless the company strikes that crucial balance before it’s too late, we could very well see another mass exodus from one leading social network to another.

Facebook itself killed MySpace by launching a better service in the same genre. Before that, MySpace trampled all over social pioneer Friendster in much the same way.

And there are Facebook alternatives waiting to crush the current king at the first opportunity, believe it or not.

Chief among these is Google Inc (NASDAQ:GOOG) and its Google+ service, which benefits from tight integration with the world’s most popular search engine as well as with leading video site YouTube.

Twitter sings a somewhat different tune but can fill many of the functions of a Facebook account. LinkedIn Corp (NYSE:LNKD) is basically Facebook for corporate users and could very well expand into the consumer side of things if it wanted to.

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