It doesnt click

After a successful 2011,profits dropped 12 per cent in the first quarter of 2012 compared with a year ago,and though Facebook now has over 900 million users,its membership is also stagnating. Then there is the challenge of monetisation. Like Google,Facebook is dependent on advertisement for most of its revenue. Transactions and fees from third parties like Zynga contribute a significant amount,but over 80 per cent of its revenue comes from display ads. However,as General Motors withdrawal of its advertising from Facebook suggests,online ads are still less effective than the old-school version. And Facebook is not good at getting its users to click on its ads a new poll suggests that 83 per cent of users rarely,if ever,click on the ads.

Facebooks dilemma is that what makes it valuable to both advertisers and investors the wealth of detail it accumulates on each of its users,their likes and dislikes is difficult to monetise. To target ads more effectively,it has to figure out a way to leverage its data goldmine better,while also ensuring that it does not alienate users and attract regulatory attention for privacy violations. How well Facebook manages to do this will decide its future.