With the Facebook IPO out of the way attention has turned to how Facebook will make money to appease their new shareholders.
They will be alarmed by news today that many retailers are utilizing the free tools available on Facebook rather than paying to advertise on the site.
Reuters reveal that whilst retailers are very happy with the returns they're seeing from Facebook, many are doing so for free. A prime example is luxury retailer Melrose.com, who have seen sales rise by 25% over the last two years, but they have spent just $1,500 on Facebook ads in that time, with most of their activity focused on managing their (free) Page.
"Some of the tools that are free are just a lot better than ads on Facebook," they explained, echoing other attendees at the Internet Retailer Conference & Exhibition in Chicago.
Alongside areas such as monetizing mobile this is a key concern for Facebook. They have understandably worked hard to provide an attractive platform for companies to interact with customers, but now they have to monetize it.
Will Facebook be forced into charging for some of these previously free services? It's a very real possibility according to analysts, especially as there is thus far little evidence that Facebook advertising really produces returns for retailers.
"They're in a huge pickle because most of their business is based on growth in advertising," said Forrester Research's Sucharita Mulpuru. But "why buy that cow when you get the milk for free?"
"The retail sector isn't buying it," said Fiona Dias, chief strategy officer at ShopRunner, an e-commerce shipping company part-owned by eBay. "With all Facebook's free stuff, retailers don't have to worry whether it works very well. But the moment they pay a nickel, there has to be accountability."
Katie Ennis, e-commerce head at apparel retailer RCC Western Stores, said she had used Facebook ads until she sat down with the head of finance and analyzed the return on investment compared with other advertising the company uses.
"The conversions were just not there. People would click on the ads sometimes but would not buy," she said. "So we completely stopped doing Facebook ads earlier this year."
This fundamental difference between Facebook and Google advertising will be a challenge that Facebook will have to overcome if they are to remain a force in the social networking world.
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