Since its IPO, Facebook Inc (NASDAQ:FB) has struggled to prove to the world that its business offers tremendous growth potential in the years to come. This is not surprising, considering the company has had a difficult time increasing its average revenue per user (ARPU), perhaps the single most important metric for investors to follow. Despite first-quarter total revenue increasing by 38% year over year, ARPU only increased by 12%. The majority of revenue growth can be attributed to active user growth, which increased by 23% to 1.11 billion users. Eventually, Facebook will reach a point where user growth begins to slow, which should be when the focus will shift more toward ARPU.
Longer term, Facebook Inc (NASDAQ:FB)’s greatest challenge is figuring out how to grow ARPU without detracting from the user experience. It’s not as simple as slapping a few more banner ads on the site since that will likely detract from user engagement, which could negatively impact the number of marketing opportunities.
Just because Facebook Inc (NASDAQ:FB) has struggled with growing ARPU in the past, doesn’t mean the company can’t overcome it in the future. Below are three ways Facebook could breathe big life into ARPU.
Earn the trust of marketers
Facebook has made earning the trust of marketers a top-three priority. To that end, the company purchased Microsoft Corporation (NASDAQ:MSFT) Atlas in an effort to bolster its advertising tracking technology. The thinking here is that the better Facebook Inc (NASDAQ:FB) can measure the effectiveness of a campaign, the more advertisers it can attract. The more advertisers it can attract, the higher prices it can charge. Keep in mind, this logic assumes Facebook’s ecosystem is an effective advertising platform to begin with, which the verdict is still out on. I suppose we’ll have to wait and see if Facebook can build the proof that social media is an advertising effective medium.
Given Facebook Inc (NASDAQ:FB)’s massive scale and worldwide reach, the company is in a unique position to serve local markets. Additionally, the social network is home to 16 million small businesses, which could help improve the impact of going local.
If Facebook solicited the opinion of users who simply checked into restaurants or local businesses, it would likely make Yelp Inc (NYSE:YELP) investors very nervous. Although it isn’t necessarily a new idea for Facebook Inc (NASDAQ:FB) to go after Yelp customers, it’s certainly a powerful one. With a database of more than 39 million reviews and counting, Yelp attracts 102 million unique visitors who are looking for trusted local businesses. With Facebook’s scale, it could seemingly out-muscle Yelp in a heartbeat, which in turn could translate into higher user engagement.
Another localized area where Facebook could enter is commerce. If Facebook Inc (NASDAQ:FB) entered the daily deals market, how do you think Groupon Inc (NASDAQ:GRPN) investors would react? My guess is not well, considering the daily deals purveyor has yet to earn a full-year profit throughout the company’s existence. Despite the carnage, the company has begun venturing into the e-commerce market and has set a goal to become a $100 billion a year business. Since Groupon is likely preoccupied with its massive ambitions, it could be a great opportunity for Facebook to begin partnering with local merchants.