Facebook faces advertising challenges

SAN FRANCISCO -- For all the huge numbers in Facebook's IPO papers, a surprisingly small figure stands out: $4.39, the amount the site generated per user last year.

It's one of the firm's major challenges because the total is paltry compared with competing Internet companies. Google makes more than $30 a year from each registered user. Even struggling Yahoo and AOL make $7 and $10.

Once Facebook goes public, Wall Street surely will demand more. That means the social network almost certainly will have to attract more users or be more aggressive with its advertising, perhaps by mining personal data even more than it does now. But can Face- book do all that without spoiling the user experience?

The company may have a tough time increasing the number of ads on a site that has become primarily a home for online conversations.

"It's a communications tool. Can you imagine what a turn-off it would be if we were talking on the phone and AT&T tried to play an ad in the middle of our conversation?" said University of Notre Dame finance professor Tim Loughran, who studies IPOs.

Facebook stock probably won't begin trading until at least May, but analysts already believe the firm will try to sell shares at a price that will give it a market value of at least $100 billion -- more than Yahoo, AOL, and Hewlett Packard Co. combined.

Facebook will need to maximize its revenue to get closer to Google, one of its biggest rivals. Google's revenue of nearly $38 billion last year translated into about $35 per registered user. Facebook had $3.7 billion in revenue last year.

But can it bring in more cash without alienating the 845 million users who have become accustomed to hanging out with friends on the site without an onslaught of ads?

Part of the firm's online environment has been by design. Facebook co-founder and Chief Executive Officer Mark Zuckerberg wanted to get as many as people as possible to create profiles on the site before figuring out the best ways to profit from all the information about their interests and connections.

In theory, those insights should enable Facebook to target ads to people most likely to be interested in certain products or services. That should appeal to marketers, giving the site enough leverage to charge more for ads than other sites. If the ads work, Facebook should be able to boost revenue per user to $10 to $12 annually, Wedbush Securities analyst Michael Pachter said.