Is This an Investor’s ANSWER to Facebook’s Revenue Question?

A recent study proved that Facebook (NASDAQ:FB) advertising, the subject of much critical discussion as the social network’s financial well-being becomes newsworthy to investors, is actually quite effective for brands. Unfortunately for the newly traded company, though, most of the success came from marketing efforts that were done using the free tools that Facebook provides, and not paid advertising.

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That sentiment is being echoed by more and more brands that successfully use Facebook to connect with consumers but realize that paying for it is not worth the buck. Now analysts are suggesting that the company should probably start charging businesses for services that are currently free.

“They could experiment with charging for Facebook pages if you are a certain sized retailer,” Colin Sebastian, an analyst at RW Baird, wrote in a recent investor note. “They have to be very careful though. They are trying to create as big a funnel as possible and over time try to monetize that. They would not want to limit the growth of the funnel at this point.”

Facebook has been experimenting. It recently started new types of paid ads, including Sponsored Stories and Ads with Social, as well as inserting ads into users’ newsfeeds. These measures are likely to give the company one way to finally include ads in its mobile version that appears on Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) Android-powered devices, something it has been criticized heavily for lacking. It is also searching for better ways to track impact and measuring return on ad investment.

But it clearly has a long way to go. Speaking at the Internet Retailer Conference & Exhibition in Chicago, Krishan Agarwal, the president of online luxury watch vendor Melrose.com, reignited the free vs. paid debate. Agarwal talked about how Facebook had helped his company generate about 25 percent more sales in two years, but that they spent less than $1,500 on paying the social network for the advertising. Most tools were simply available for free. “Some of the tools that are free are just a lot better than ads on Facebook,” Agarwal said, according to Reuters.

The problem of not being to measure how successful a paid ad campaign is also big. According to Katie Ennis, e-commerce head at apparel retailer RCC Western Stores, the company stopped advertising on Facebook after not seeing significant conversions. However, as soon as they stopped, they noticed a decline in sales. Once they resumed running ads, sales recovered. “So Facebook ads are having an effect, but we’re not sure how and we can’t measure it,” Ennis told Reuters.

At the moment, Facebook recommends that marketers use free tools to get engage customers and then pay for ads that can spread successful campaigns to a broader audience. Maybe it needs to start insisting on it.

Shares of Facebook closed up over 6% to finish Friday at $$30.01 per share. Friday is only the 7th day in company history shares closed above the $30 mark.

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