Market Overview

Can Individuals Profit From Internet Advertising?


Last Friday, May 18, the stock for Facebook (NASDAQ: FB) opened for trading. The price for Facebook's Initial Public Offering (IPO) landed at $38 per share, above the previously provided range between $28 and $35 per share. In their first day of trading, shares of Facebook opened at $42.05 and closed much lower at $38.23.

How is Facebook cashing in on internet advertising?

The bulk of Facebook's revenue comes from selling advertisement space. Using detailed personal data collected by the social network leader, advertisers can fashion their promotions to a specific segment of users. In the first quarter of 2012 advertising accounted for 82% of company revenues ($1.058 billion). Total revenues from advertisements in 2012 are expected to reach an estimated $5.78 billion. Payments from Zynga, the creator of Farmville and other games played on Facebook, amounted to 11% of total revenues in the first quarter of this year.

Advertisers see the users of social networks, with their connection to friends and readers, as a low cost method to reach audiences around the world. Facebook has over 900 million active monthly users. The company claims the site has generated more than 125 billion friend connections and 300 million photo uploads per day. Facebook recently purchased Instagram, a photo-sharing platform in exchange for $300 million in cash and 23 million shares.

Mark Zuckerberg, founder and CEO of Facebook, said during the road shows promoting the IPO to institutional investors that one of the company's main goals is to build stronger ties between the social network and other online applications to “create a transformative advertising experience”. Almost half the monthly users access the social network giant through mobile applications. Analysts believe future growth will depend on the company's ability to earn money from an increasing number of users accessing Facebook through apps like Smart Phones, which currently adds little to the company's revenues.

When a person fills out a personal profile for their Facebook page they are giving advertisers a treasure of information that include favorite hobbies, likes and dislikes, demographic data, and even political philosophies along with those of “friends”. Though Facebook currently offers the information for free to marketers, some analysts believe the company could start charging for the detailed profiles. Companies can tailor product promotion based on the data.

How can you cash in on internet advertising?

It seems like everyone has information to share through a blog entry, tweet or Facebook post. Through platforms created by IZEA (PINK: IZEA), the individual can profit by connecting with advertisers willing to pay for the exposure to his or her friends and readers. Furthermore, platforms such as SocialSpark or PayPerPost make it possible for advertisers to make an appeal directly to people reading your words. For example you have written a captivating article on your blog about golf. You alert readers about the post through a link on your Facebook page or by a tweet. A company manufacturing golf equipment or a golf resort would like to touch your audience. IZEA apps help advertisers speak to a specific group of people through you, in this case golfers, and at the same time put money in your pocket.

How often have you posted a picture or commentary through your mobile phone app to Facebook that shows you dining at an Italian restaurant or standing in front of a hotel? WeRewards in conjunction with a sponsored participant pays you money for the personal promotion. In addition, marketers of pasta products, for instance, may offer additional advertising payments to promote their product to your friends viewing a picture of an Italian diner.

Chasing a hot new IPO can be gut wrenching and unprofitable for the average investor. Buyers of LNKD at the opening of the first day saw a loss of $20 just six days later. Those who bought the stock near the highs on the first day of trading are still in the red. Making money from your words and photos may be a calmer and surer bet.

Services like IZEA, SocialSpark, PayPerPost and WeRewards offer individuals an opportunity to cash in on their social clout – just like Facebook is cashing in on its users. Individuals cannot significantly influence the success of Facebook by buying shares, but they do have significant control over the magnitude of their social clout. They can improve their clout by posting quality content that is relevant to readers. An average person might get burned by trading shares of Facebook during its hyped and potentially volatile first few days, but taking the situation into his or her own hands and cashing in from advertisers directly could be more assured.

Posted-In: News Movers & Shakers IPOs General Best of Benzinga


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