In its IPO filing Wednesday, Facebook identified mobile’s limited revenue potential, competition from other social networks, and the potential loss of advertisers as factors that could seriously harm its business. But was the social networking company, which relied on advertising for 85 percent of its revenue in 2011, forthcoming enough about the real risks associated with its primary money-maker? “The issue of click-through rate was not mentioned as a risk in the S-1,” said Peter Adriaens, a professor of entrepreneurship at the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies. That omission stood out for the Internet IPO expert because research suggests that the percentage of Facebook users who actually click on ads is quite low, and that means advertising dollars could eventually drop.
Facebook does not publish its average click-through rate (CTR), but independent analysis from Webtrends on more than 11,000 Facebook campaigns showed that the average CTR for Facebook ads in 2010 was 0.051 percent, which is about half the industry standard CTR of 0.1 percent. The rate, according to the Webtrends report, dropped from 0.063 percent in 2009, which points to a downward trend. (more)
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