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Facebook's Risky Ad Move

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- Facebook's decision to put up advertisements on the news feed may act as a further deterrent to the social network's users.

As Facebook's much hyped IPO approaches, it has stepped on the gas to bolster its monetization. However this could come at the expense of aggravating users. Facebook leads in the social networking space with competitors such as Google (GOOG) and is increasingly taking ad revenues away from struggling sites Yahoo (YHOO) and AOL (AOL).





See our complete analysis for Facebook here.

Facebook is not exactly facing a cash crunch. The company's advertising revenues are already expected to double in 2011 from last year, reaching around $3.8 billion. Additionally, the company has consistently expanded its revenue stream further by acting as a host site for various services such as music and games. It seems the company is in a rush to increase its monetization before its anticipated IPO, in order to achieve an even more lucrative valuation.

Is putting further ads up on the news feed worth the risk?

The "frictionless sharing" concept has already faced some backlash from users over the clutter it creates, and ads in the news feed could only worsen this problem. As of now, the company seems confident that loyal users will remain hooked to Facebook despite these initial concerns.

We currently value Facebook at around $45 billion.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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