Just before Facebook’s IPO in the middle of May, GM decided to pull its advertising from the site, saying it’s not effective. The GM advertising chief who made the decision has since quit (for other reasons), and the company said it plans to return to Facebook — though it hasn’t yet. But that snowball was the beginning of an avalanche of trouble for the social network’s revenue stream. Around the same time, NPR did an experiment in which they gave a start-up pizza joint money to advertise on Facebook, to see if it helped sales; the result was a resounding no: after tweaking their ads, they got 250 likes, but only one customer from those likes. A couple of days later, the much-hyped IPO suffered from a NASDAQ glitch and, whether related or not, the stock flopped: it opened at 38$, and within two days, it fell to 31$. That grossly mishandled IPO lost a lot of people a lot of money — UBS lost 357 million dollars.
Facebook made it through June relatively unscathed, but the news in July went from bad, to worse, to even worse:
- July 12: BBC announced that an investigation of Facebook’s “Likes” system showed that most of them came from spam bots, not actual people. Facebook denied the accusation.
- July 17: A survey by the American Consumer Satisfaction Index showed people were much happier with Google+ than Facebook. In fact, every social network scored higher than it: LinkedIn, Twitter, Pinterest, YouTube, and Wikipedia.
- July 17: 1.1% of Facebook’s American users left the site.
- July 20: Google reports that for the third quarter in a row, its revenue per ad has gone down. And it’s not just Google: online ad revenue has been going down across the board, probably as people are getting used to ignoring all the ads. This is particularly bad for Facebook, which makes almost all of its money from advertising. Google, makes most of its money from ads, but has also diversified so that ad sales don’t impact it as much anymore.
- July 26: Facebook reported its earnings for the first time as a public company. They just barely met expectations, and after the IPO and other bad news, investors decided to call it a day: their stock fell to 23$ — the lowest price yet.
- July 30: A start-up called Limited Run reported that they’re leaving Facebook because they want to change their page’s name, but Facebook is holding it hostage, unless they buy 2,000$ in ads per month. So they did an experiment to see if it would be worth it, and found out that about 80% of the clicks to their website that came from Facebook, came from spam bots.