As Facebook Readies IPO, Local Strategy Is in Focus

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With Facebook set to file papers for its initial public offering as early as tomorrow, speculation is swirling about the social network’s potential valuation, with estimates settling somewhere between $85 and $100 billion. A major component of the valuation is the company’s ability to tap into the local marketplace – a segment in which Facebook has already established a substantive presence.

“All of the things that [Facebook] has done to date have centered on creating the infrastructure and foundation for growing a very big business,” Nihal Mehta, CEO of the social targeting startup Local Response, told Street Fight in an interview. “They are thinking for scale — not ‘how do we get this to 10,000 or 20,000 businesses’ but ‘how do we get this to millions of businesses.’”

In August, Facebook took what appeared to be a step backwards with its local strategy, closing its Deals product and reconfiguring its check-in play Places as a subtler, across the board geo-tagging feature.

“I think what they realized is that they are the biggest consumer-facing web property in the world and there is no reason to imitate others,” said Mehta about Facebook’s decision to dump the foursquare and Groupon-like features.

As Mehta points out, much of the technology developed behind Places is alive and well in Facebook’s current product. The place database, for example, powers the geo-tagging feature in status updates and other back-end solutions, like the company’s venue verification system, and continues to enable the company to build its local product at scale. The point being that in a sense, August was a necessary moment for Facebook’s local product, as it kept intact a critical hyperlocal infrastructure while refocusing on the core monetization strategy — social advertising.

Led by Gokul Rajaram, the product manager who built up Google’s AdSense before joining the social network through an acquisition in 2010, Facebook’s ad platform is very much modeled off the search giant’s lucrative paid search product. The goal, said Rajaram in an interview with TechCrunch in September, is to create a self-serve product that not only placates the needs of big brands, but works seamlessly for local merchants who are not marketing specialists.

“I think what they realized is that they are the biggest consumer-facing web property in the world and there is no reason to imitate others,” said Mehta.

Fellow ex-Googler and Facebook COO Sheryl Sandberg echoed Rajarm’s emphasis on the local advertiser, telling USA Today a few weeks later that her dream for the company’s advertising platform was simple. “I think every small business should be using Facebook and we’re not going to stop until all of them are using it to grow their business,” she said.

Considering that 70% of small businesses already use Facebook as a promotional tool through Pages, the company has a serious leg up on the competition. Transitioning these users into paying customers means cutting into Google’s massive market share of local ad spend, and potentially replacing the search giant as the de facto marketing tool for local businesses online. With local social spend set to quadruple over the next four years, Facebook’s imminent push into the local market will likely result in a prolonged showdown with Google.

To win, Facebook will need to build systems capable of bridging online and offline interaction. This means building into the point-of-sale through some form of mobile payment product or partnership; enabling proximity targeting through its mobile application; and developing other interactive hyperlocal advertising products that help merchants track customers from the impression to purchase and back online, with “likes.”

“[Facebook] knows more about every individual than anyone else, and they haven’t even begun to leverage this data in their ad product,” explained Mehta when asked what to expect in the months after the IPO. “Short answer is that yes, we’re going to see an explosion of new innovation around monetization post-IPO. I think they have a very specific plan to make sure that revenue is growing at an exponential rate in the years after they go public. “

Steven Jacobs is an associate editor at Street Fight.