Facebook Takes First Step Toward Full-Fledged Ad Network
Facebook and Zynga have always had a close-knit relationship. Traditionally, Zynga has used the Facebook platform to launch its suite of popular social games, including FarmVille and Mafia Wars. This symbiosis has been quite profitable for both companies: Facebook earns 15 percent of its revenues from Zynga's games, while Zynga depends on Facebook for an astronomical 92 percent of its revenues.
However, investors have started to find this dependence somewhat troubling; if Facebook and Zynga were ever forced to part ways, it could put a serious dent in Facebook's finances and potentially cripple Zynga. Therefore, Facebook and Zynga have both been looking for ways to diversify their revenue streams in order to protect themselves from adverse market conditions.
Strangely enough, their efforts to break free from one another have led them to join forces yet again through Facebook's new external advertising network. Although Facebook has been actively promoting online commerce within its walled garden, from which it receives a 30 percent cut from all transactions, the majority of its revenues – more than 80 percent in the first quarter of 2012 – still comes from advertising within Facebook itself.
This strategy has been wildly successful for the social media giant, producing total profits of $205 million during the quarter, but it has become undeniable that Facebook's user growth is slowing down. In fact, the number of unique Facebook users in the United States has actually decreased by nearly five percent in the past six months.
Facebook still has more than 900 million total users, and it is widely expected that this number will reach one billion by the end of the year. Nearly 10 percent of all online traffic in the United States goes to Facebook, and its users are actively engaged with the site: On average, users spend 20 minutes on Facebook per visit. These are statistics over which any other website would drool, but even Facebook is beginning to realize that there are limits to how much traffic they can drive to their own site.Continued on the next page