I have written quite a bit about my doubts of Facebook’s long term value. And amidst all the recent news about their IPO woes it seems like investors are skeptical as well. Last week I wrote an article highlighting my thoughts on why I am skeptical about Facebook’s long term value. Today I would like to explore a scenario that is the flip side of the argument I laid out last week. In this scenario Google should be very worried about Facebook–if they are not already.
Maybe this is weird but I have debates in my head where I argue many sides of a point or hypothesis while I am building my analysis. Even though I may have a conviction that a scenario goes a certain way, I believe it is important to examine all sides. My overall skepticism with Facebook’s business model, and value, is based on the assumption that their advertising business model and other potential revenue streams is limited to Facebook–their only asset to date.
There is no question that Facebook is gathering a database of extremely detailed profiles of Facebook users. The assumption has been that they would use that detailed user profile to match advertisers up with the right consumers as those folks use the Facebook service. As I pointed out last week, the reason consumers use the Facebook service is different from other services or content they consume where advertising actually works. Advertising works well when the ads are related to the content being consumed. With that in mind, if Facebook was to create an advertising network similar to what Google does with AdSense they could potentially take a big chunk of Google’s business.
One Ad Network to Rule Them All
Google has built their ad network by linking advertising up with related searches. This makes a great deal of sense and works quite well. Google uses services like Gmail, Android, Picassa, etc., to try and gain more information about people so they can sell more targeted ads. However for Google to come even close to knowing intimate details about me and my life, I would need to use all of their services. Something that it is not common for many consumers. However for Facebook to know all the intimate details of me and my life, I only need to use Facebook. Therefore, Google basis most of its targeted advertising value by knowing what was searched but Facebook can base its targeted advertising by knowing more about the searcher.
If Facebook created a service like Google’s AdSense they could extend their extremely targeted advertising strategy beyond the walls of Facebook. Given that many websites which require you to log in to sign up for a service, give consumers the option of logging in with Facebook, there are a myriad of ways Facebook can leverage their consumer profiles with all their online partners.
Extending value to advertisers and brands beyond the walls of Facebook is key to Facebook’s value in my opinion. This model could be completely disruptive to not only Google but the vast majority of advertising networks.
The Broader Opportunity
Even if Facebook employed this strategy, displacing something like AdSense is no easy task yet the upside is significant in my opinion. On Monday, Tim explored whether Facebook’s best days are over or ahead. He pointed out that the trend of vertical social networks is one we are watching quite closely. Whether it is publishing sites or communities based around specific interests, we believe those are the places where targeted advertising can thrive and return value. Facebook either needs to figure out who to create these niche communities within the walls of Facebook or do what I propose and give those sites access to their ad network.
What makes this strategy so interesting is that if it were done right, Facebook as a service could exist solely to collect key data needed for advertisers. If Facebook could have success building an ad network and monetizing it primarily with partners then potentially Facebook itself could be advertising free. Ads on Facebook right now clutter and detract from the experience which brings me there in the first place ( I also believe they are useless in their current form). I truly believe that if Facebook is reserved to only make money within the walls of Facebook, that they will make compromises that will seriously detract from the Facebook experience and drive consumers away. However, if they can make money outside the walls of Facebook then they have a chance of creating better experiences and keeping loyal Facebook communities.
Lastly, the broader opportunity becomes even more interesting as we think about mobile and emerging platforms like the television. My point that Facebook may very well know more about me than any other company pitching advertisers becomes interesting with mobile advertising and even my future experiences with TV. If TV networks can partner with Facebook for example they could begin to deliver some of the most valuable advertising in the form of rich media due to the amount of information they know about me. Which if you think about what ads I see today on TV, in print, online, etc., it becomes clear very little is known about me.
Facebook, in my opinion, is the only company today who is in a position to completely change the advertising realm across a range of mediums. However, it depends on them thinking bigger than themselves and the destination they built.
Sounds extremely logical! I hope Facebook does it!
gibberish. if i follow writers ” If ” (wishful thinking) logic facebook too should fear Google . how ? if Google was able to create a successful social network similar to what facebook does with its 900mil user they could potentially take a big chunk of facebook’s business. am i saying anything wrong !
“Maybe this is weird but I have debates in my head where I argue many sides of a point or hypothesis while I am building my analysis. Even though I may have a conviction that a scenario goes a certain way, I believe it is important to examine all sides.”
Not weird at all.
“The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.” — Bertrand Russell
it is pure fantasy that facebook knows more about you. fantasy.
facebook banner ads dont work anywhere.
lets not give facebook another free pass and spend billions refitting the web and spending billions on facebook to find this out.
facebook’s very revenue — all of it actually — is based on the fact that we keep paying facebook itself to figure out what will work on it because we assume something must.
again, facebook has no ability to recognize “intent”
I think you might have missed my point so let me clarify. In no way is Google’s search business in trouble in this scenario. Only their adsense business. Their adsense business does not deal with intent it just simply delivers impressions.
In my scenario the network Facebook could create that is similar to adsense to extend to publishers could link up better advertising (not the current crap you see on Facebook) linked up with a specific readers interests, likes, etc..
Since many sites building communities or creating an online service are using Facebook to log in, this is not a difficult task.
I have worked with many publishers across online media and generally the opinion of Adsense is that it is simply third tier revenue. Not good but something that delivers impressions. I see a lot of weakness across the board with how online advertising is delivered.
That is why I think Facebook could be a company that could create something of value for online publishers and beyond.
Ever heard of remarketing and audience targeting? Adsense is very much based on intent, the intent comes from remarketing, audeince targeting as well as keyword based context targeting.
Facebook only has demographics data, which we have all seen works pretty badly.
You make a good point Benjamin and your rationale about an Ad Sense competitor is valid. However how would you see Facebook Open Graph deliver better click through for Ads on other sites and verticals when it fails to do it on Facebook pages ?
To fully answer that I would need a deeper analysis on what Facebook is doing with their internal targeted strategy and why they are not working in current form. What I gather on the surface is that the ads are largely coming to me by way of interest, brands, or topics that I have liked as well as looking for keywords in things I say via status updates.
I do tend to see relatively targeted ads of interest, I simply ignore many because the campaign is weak or not captivating or poorly designed. Ads on Facebook are there but not the same campaign or graphical quality of some I see on sites where they have a better chance of working. This is a good thing because Facebook needs to stay about the social experience not get overtaken with large banner skyscrapers and 300×600 ridiculous flash loads and site takeovers, etc…
However should a site like the NYTimes for example who uses this kind of advertising strategy, either buy FB’s social graph data from them or use FB’s AD network from them, they can pair up more high quality / high impact campaigns with the likes, interests, habits etc of the current reader (assuming again that the FB data was carried over to the NYTimes so the NYTimes knew it was me and matched the data with my actual FB profile.
Lot’s of assumptions in this theory, but it is in my opinion the only way forward for FB as the data keeps looking bad on them and their current monetization strategy.
To fully answer that I would need a deeper analysis on what Facebook is doing with their internal targeted strategy and why they are not working in current form. What I gather on the surface is that the ads are largely coming to me by way of interest, brands, or topics that I have liked as well as looking for keywords in things I say via status updates.
I do tend to see relatively targeted ads of interest, I simply ignore many because the campaign is weak or not captivating or poorly designed. Ads on Facebook are there but not the same campaign or graphical quality of some I see on sites where they have a better chance of working. This is a good thing because Facebook needs to stay about the social experience not get overtaken with large banner skyscrapers and 300×600 ridiculous flash loads and site takeovers, etc…
However should a site like the NYTimes for example who uses this kind of advertising strategy, either buy FB’s social graph data from them or use FB’s AD network from them, they can pair up more high quality / high impact campaigns with the likes, interests, habits etc of the current reader (assuming again that the FB data was carried over to the NYTimes so the NYTimes knew it was me and matched the data with my actual FB profile.
Lot’s of assumptions in this theory, but it is in my opinion the only way forward for FB as the data keeps looking bad on them and their current monetization strategy.
You make a good point Benjamin and your rationale about an Ad Sense competitor is valid. However how would you see Facebook Open Graph deliver better click through for Ads on other sites and verticals when it fails to do it on Facebook pages ?
Facebook, for all you NaySayers, is the ONLY company in the world that gets “free, that’s right,100% freeeee advertising;-by almost every single company in the world that buys and sells stuff to consumers.Do you see the Facebook logo on stuff? Yep. all of it…….do you see “find us on Facebook” on product after product after product after product, ad infinum?? YEP.On all of it.! At some point all that “free advertising” has to pay off for them, and if they have half a brain, and any sense at all,- they will figure out how to turn this social media feeding frenzy” into bucks, –as in money. –as indollars and cents.
Thank you for great content. I look forward to the continuation.
You’re so awesome! I don’t believe I have read a single thing like that before. So great to find someone with some original thoughts on this topic. Really..
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This post post made me think. I will write something about this on my blog. Have a nice day!!
Well done! This article provides a fresh perspective on the topic. Thanks for sharing your expertise.