Facebook’s Friday IPO may have been cause for celebration on the company’s Menlo Park campus, but it was hardly the coming out party major players on Wall Street had hoped it would be.

Beset by technical glitches at the NASDAQ and perhaps more skepticism from the market than anticipated, Facebook’s shares failed to ‘pop’ as many expected.

The company’s underwriters were forced to step in to keep Facebook’s shares from falling below the $38 offering price.

That underwriters will attempt to keep new issues from falling below their offering price on their first day of trading is an unwritten rule on Wall Street, where the one thing that often matters more than money is reputation. But the underwriters haven’t stepped in to stop today’s bloodbath, which has seen Facebook shares pushed down by approximately 12% in early trading, bringing the company’s valuation well below the much-talked-about $100bn mark.

As I wrote on Friday, trading in FB shares will make for great entertainment in the coming days and weeks, particularly when skeptics gain the opportunity to bet against the company by shorting and purchasing options. But beyond the entertainment, Facebook’s IPO woes highlight the fact that many questions remain about the company’s business.

That business, which is largely driven by advertising, clearly has a lot of potential, but industry players, observers and investors are split on how much that potential can be translated into profit.

At the center of the debate are questions over the efficacy of Facebook’s ad products. Yesterday, an article by Peter Faulkner was published on Ireland’s TheJournal.ie. Faulkner owns Faulkner Packaging, which was founded in 1860. His article, which was apparently written before GM announced that it was halting paid Facebook advertising, describes his company’s experience with Facebook ads:

So far I have spent €160. Time to look at the number of our own website visits clicked through from the Facebook pages. Result? Two! €160 quid for two clicks, each of whom looked at two site pages.
Clearly something is not right, so I decide to view the profiles of all those who clicked the ads. They hit one common spot – they were all in the UK. But they were aged from 13 to about 70, many were unemployed or in education, we even had a Muslim fundamentalist who is very concerned about things in Pakistan. Lots and lots of doting mothers with FB pages full of cutesy little life mottoes. It may well suit some types of businesses but I can say we are not among that number.

According to Faulker, his company has been using Google AdWords since 2002 and by his analysis, Google accounts for some 92% of all traffic his websites have received since last January. “I am but a simple engineer, but if you hold 92 per cent of the space, you own it. I am going to do my business with the top banana: the owner!” he writes.

Faulkner’s comment that Facebook “may well suit some types of businesses but I can say we are not among that number” highlights what is arguably the largest problem with Facebook’s ad model: its addressable market size is likely far smaller than many have believed.

Major companies like Ford, which is apparently more satisfied than GM with its Facebook advertising, can justify many campaigns as ‘branding’ initiatives. Whether you’re skeptical about the ROI from these campaigns or not, billions are spent on them each year and there’s a real role for Facebook to play in this market.

But for the vast majority of businesses that aren’t looking for branding and don’t have hundreds of millions (or billions) of dollars to spend keeping their brands top-of-mind with consumers, Facebook hasn’t yet proven that it can deliver a return. Without that ability, Facebook will never be able to acquire and retain the Faulkner Packagings of the world, many of which happily spend thousands of dollars a year with Google.

That’s a big deal because without a compelling proposition that convinces SMEs to spend money month after month, Facebook probably doesn’t have a pathway to Google-like revenue — at least as far as advertising is concerned. Unless and until Facebook can win over business owners like Peter Faulkner, one has to assume that Facebook’s addressable market is currently much, much smaller than many have suggested. That in turn suggests that much of the skepticism over Facebook’s valuation and future prospects is well-placed.