Piper Jaffray Has 2 Ways to Massively Increase Facebook’s Ad Revenue

September 20, 2012
By Aman Jain

The social networking giant, Facebook Inc (NASDAQ:FB), which is still in its early stages of monetizing its huge audience base, has a long way to go. The company’s main revenue comes from its simple display ads, which are shown on the side of Facebook’s desktop site. Apart from this, to boost the revenues, Facebook Inc (NASDAQ:FB) has recently introduced an ad exchange and Sponsored Stories, which are performing as per the expectations. As per a report from PiperJaffray, Facebook can use two other methods to further monetize existing page traffic; those are, monetization of search and a more traditional ad network. If the company effectively utilizes the mentioned methods, it could help the revenue by approximately $1.5 billion in the coming 3-5 years.

Facebook Inc (NASDAQ:FB)’s current search function is used for finding information within Facebook Inc (NASDAQ:FB), and that is monetized mainly by display ads not relevant to search term. Changing that, company has recently introduced sponsored search results for app developers.

Even the CEO, Mark Zuckerberg, revealed recently that it makes more sense for the company to use search more actively. The report makes a suggestion that if Facebook joins hands with Microsoft Corporation (NASDAQ:MSFT) on a search agreement like it had with Yahoo! Inc. (NASDAQ:YHOO), then the company could pocket about $400 million in annual revenue, “while replacing about $50 million from the inventory the company loses to search advertising from Bing.”

Such figures stem from the assumption that Facebook will generate about 20 billion search queries in 2012, based on the past quarter’s comScore Inc. (NASDAQ:SCOR) search data. At the current rate, Yahoo earns $0.02 per query, net of the Microsoft Corporation (NASDAQ:MSFT) take, so applying math to Yahoo! search monetization rate to Facebook’s queries, it yields $400 million in revenue. The report further states that “we believe that search queries make up about 1% of total impressions on Facebook, thus 1% of revenue may be replaced, which would be about $50 million given current year estimates.”

The Social networker has long been expected to come up with an ad network that makes use of its large user base, in order to make ads more social outside of Facebook Inc (NASDAQ:FB). The report expects the company to come up with such a plan eventually, as Facebook “began testing a mobile ad network product” recently.

Given the companies gigantic user base, the report expects it to create a network business on par with that of Google Inc (NASDAQ:GOOG). Google is expected to pocket about $1 billion or more in ad network revenue this year, expecting the same for Facebook in the long run, the report says “the longer-term opportunity in an ad network for Facebook Inc (NASDAQ:FB) may be similar.”