No matter how much progress Facebook Inc (NASDAQ:FB) has made since its botched IPO, it seems the company will never fully escape the glare of scrutiny. This is despite the significant progress that’s been made. Facebook is no longer about hype. The company has taken meaningful strides toward maturity. But as with most young companies, there have been several missteps. And investors are caught between the company’s strong potential and its “trial-and-error” business model.
It’s hard to discount the potential of a company that boast about having 1 billion users on its service, or roughly 15% of the world’s population. Remarkably, Facebook Inc (NASDAQ:FB) can never seem to get its business formula right. And much of its criticism has been due to its constant changes, many of which leave users are unsure of their meaning (e.g., the ever-evolving privacy statement, changes to the timeline, and most recently, altering Instagram’s terms of service). The company operates with the mind-set of “Let’s see what happens if we push this button?”
Facebook Inc (NASDAQ:FB) is forever searching for ways to monetize its user base. Unlike other tech companies such as Apple Inc. (NASDAQ:AAPL), which has a clear focus on the end-user experience, Facebook struggles to anticipate what its users want. Conversely, through constant user complaints, it knows what they don’t want. But this can’t work long term. And if the company’s not careful, it will begin to alienate an already frustrated base of people. But this shows how dominant the platform is. Despite constant anger, the user base is still growing and Google Inc (NASDAQ:GOOG)‘s Google Plus alternative has shown to be no real threat.
The good news, though, is investors have reasons to be patient. The company is posting good growth numbers. Fourth-quarter revenue Street estimates soared 40% year over year. The company is also doing well in that all-important ad-based mobile category. Facebook Inc (NASDAQ:FB) posted a 12% sequential increase active mobile users. Equally impressive is that mobile ad revenue surged 135% from the third quarter and now accounts for roughly 25% of the Facebook Inc (NASDAQ:FB)’s ad revenue. Clearly, there’s plenty of progress. But there are also many opportunities.
For instance, despite the progress in mobile ad revenue, the aggregate ad revenue total still arrived much lower than expected. Granted, it advanced 41% year over year. But it arrived flat sequentially on a constant currency basis. And even though the company posted 46% growth in impressions, advertiser pricing dropped roughly 4%, which is the reason why Facebook is feeling pressured to continually evolve. But there has to be a middle ground. Youthful exuberance can turn to annoyance very quickly. And Facebook has to be mindful not to use its users as guinea pigs.
Make money, but not at my expense
Fairness has become a hot topic of late. And Facebook is finding it hard to please both users and investors. Plus, the Street demanded that the company monetize its user base, which is partly why Facebook changed Instagram’s service terms. The new policy gives Instagram the right to use images uploaded by users without permission or compensation. Users were not pleased and became fearful that they might find their image in an unsupported ad — and doing so for free made matters worse.
Facebook did decent damage control. But the idea itself soured its reputation and raised ethical questions. This is yet another example of Facebook “beta” model, which needs to tighten up. Granted, Apple Inc. (NASDAQ:AAPL) has had its own PR gaffe with Mapsgate. But it was not deemed exploitive of customers. Plus, unlike Apple Inc. (NASDAQ:AAPL), Facebook is deficient at maintaining that delicate balance of customer service and investor value.
Perhaps the new Graph Search feature can help. Although it fizzed after it was announced — shares sold off almost 6% — there may be some potential here. But given that it will only yield results that have been shared by users, it will be a while before it is deemed a legitimate threat to Google, especially since it only searches within walls of Facebook. For now, it’s an information collection tool. But at some point, Facebook should open the floodgates. Targeted ads are a big business. And Google will find it hard to compete with that kind of guaranteed return.
And with Apple Inc. (NASDAQ:AAPL)’s help, Facebook can potentially become the next dominant search engine, especially since Apple already integrates Facebook into the iPhone. This means any advancement made in Graph Search will benefit Apple and further hurt Google. In the meantime, as an Internet company, and one that has pioneered social media, Facebook can’t continue to discount its reputation and expect to survive. This is another lesson it can learn from Apple.
The article Can Apple Help Facebook Move Its Business Model Out of Beta? originally appeared on Fool.com and is written by Richard Saintvilus.
Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, and Google.
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