Facebook’s disappointing IPO has shaken up the tech sector to the point that Paul Graham, co-founder of famous talent incubator Y Combinator, wrote a letter to portfolio companies calling the flop “bad news” and saying it could hurt funding for all startups in Silicon Valley.
The issue at hand is whether or not Facebook is capable of fully monetizing the traffic from its 900 million users. A new Reuters/Ipsos poll claiming that four out of five Facebook users “have never bought a product or service as a result of advertising or comments on the social network site” is definitely not going to allay investors’ fears.
To make things worse, the poll also claims that 34% of users were using the site less than they were six months ago, while only 20% were using it more. Numbers like these are what cause companies like General Motors — which pulled its ads right before the IPO because it said they were ineffective — to be wary of committing ad dollars to Facebook.
Apparently investors’ lack of confidence has rubbed off on Facebook’s users: 44% of the 1,032 Americans polled said that the flailing IPO made them look at the company less favorably.
Facebook, as expected, pointed to past success stories. According to Reuters:
Facebook declined to comment in detail on the survey, but referred to case studies of companies such as Nutella, which found that a 15 percent increase in sales was attributable to Facebook, and restaurant chain Applebee’s, whose Facebook ads delivered a threefold return on investment.
Tracking just how effective an ad is — especially when it comes to new and evolving advertising models — is always tricky business. Just because a business doesn’t get direct clicks doesn’t mean its ads aren’t creating brand awareness.
Still, this is bad news for a company whose stock is down 29% since its IPO, which could explain why Facebook has been testing out new products such as Highlights and Promoted Posts, which let users and businesses pay for their posts to reach a broader audience.