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Summary:

Included in the changes that Facebook recently announced to its privacy and governance policies was an admission that it aggregates and shares data on user activity with advertisers — and Facebook says it plans do so not just inside the network but on external websites as well.

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There’s been a lot of discussion over the past few days about the recent changes to Facebook’s privacy and governance policies — including the revelation that (gasp!) Facebook is not actually a democracy — but one element of the new rules has gotten less attention than it probably should: namely, the fact that the giant social network is going to use the data it has about your likes and dislikes to show you ads outside of Facebook. This is the first real confirmation that the company is going to roll out an advertising network that extends beyond just its own walled garden, and it could turn out to be one of the biggest factors in the success or failure of Facebook’s revenue-growth strategy.

It’s true that the network wants to do away with the voting process that it implemented as a way of improving its governance policies, which required it to get 30 percent of its users to support something before it could make a significant change. But this approach was mostly a failure before it could even get started, since the last vote the company held saw .03 percent of users participate — and as more than one person has pointed out, getting 30 percent of Facebook users to vote would mean 300 million people, which is more than twice as many as voted in the recent federal election in the United States.

Soon, Facebook ads could follow you around the web

In any case, the company has other goals it needs to meet first, and one of those is generating enough revenue to make Wall Street and other investors happy with its $50-billion market capitalization. And that has put a lot of pressure on Facebook to come up with a winning mobile strategy, among other things, since its clickthrough rate for traditional ads is abysmal.

Sponsored stories (which have been criticized in a number of jurisdictions, and could become illegal soon in Norway, according to one recent report) are one way of trying to solve that problem. An external advertising network — one that uses information about users and their activity on Facebook as a way of targeting external ads on other websites — is another way. Chris Dixon, the Hunch founder who just became the newest partner in Silicon Valley venture-capital firm Andreessen Horowitz, has described this as an “embedded option” for Facebook investors, meaning it could stand to significantly enhance the company’s financial prospects if it is handled properly.

“An external ad network is inevitable. Google proved this model with Adsense. With an already huge base of advertisers bidding on CPCs, it is impossible for most other ad networks to compete on publisher payouts. But Facebook’s traffic is so great now that an external ad network might increase their revenues by 2x or so.”

To put this in perspective, if an external ad network did manage to double Facebook’s revenues, that would take them to almost $10 billion a year from their current level of about $5 billion. Theoretically at least, it could push them even higher if Facebook manages to attract enough advertisers with its targeted data.

Your activity on Facebook = ads outside of Facebook

There have been hints that the company was planning to roll out such a network: earlier this year, Facebook experimented with sponsored stories on Zynga’s website that were governed by the data that the social network had about users based on their activity inside Facebook. And the company also provided a preview of the latest changes in May, although most of the attention at that time was focused on the privacy implications. Now it has become even more obvious that an external ad network is the goal — and Facebook’s Chief Privacy Officer said as much in a comment to Forbes magazine about the new rules:

“Everything you do and say on Facebook can be used to serve you ads. Our policy says that we can advertise services to you off of Facebook based on data we have on Facebook.”

As Quartz points out, the first outcome of this new approach could be the introduction of ads into Instagram, which was acquired by Facebook earlier this year for $735 million. But the social network is sure to extend that to other websites and services it could partner with — if only because the kind of data that Facebook has on user behavior (even though it is anonymized) is one of the biggest potential treasure troves of ad-targeting that exists online. Access to information about the browsing and liking habits of a billion people isn’t something that comes along every day.

Google has built a multibillion-dollar advertising business around showing people relevant ads while they search, and so far nothing has been able to match the effectiveness of that approach. But if Facebook is able to target ads on external websites and services based on the data that it has, we could see one of the first major challenges to Google’s ad dominance.

Post and thumbnail images courtesy of Flickr user Balakov

  1. Nice, I expect to see a better attempt at expanding Facebook advertising than the attempt to go social with Google+

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    1. G+ is FAR more social and built around social behaviour than Facebook. Just look at basic functionalities like conversing with people outside your friends, which isn’t even possible on Facebook. It’s like shouting at a market when you try to have a public conversation with someone on Facebook’s “pages”. You can’t quote, notify or in any way get the attention of the person you’re trying to have a conversation with WITHOUT friending them. That’s not “social” at all.

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      1. Definitely. All G+ needs is the people that other people join Facebook to hang out with.

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    2. If facebook come with this google going to face a competition. Now its matter of time to see how facebook takes their step and how google react.

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  2. Radford Castro Friday, November 23, 2012

    Google has to be concerned about this type of development. The search giant relies on 97% of its revenue on ads. If Facebook ads prove to be more effective and larger companies see a significant difference in sales, Google could be in trouble.

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    1. yeahsure, “google could be in trouble”.

      think i heard this when they paid 1.5B for youtube and when they went public (sans wall street underwriters) at $60.

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    2. Larry Mingrone Friday, November 23, 2012

      I hope you’re joking. FB adds will NEVER be as effective in CORPORATE market. That’s all that matters. Google would buy them if they had to.

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  3. External ads must generate clicks. That changes Facebooks ability to provide branding ads that deliver a message rather a call to action.

    To make it work they would have to find a way to make publisher websites more than Google Adsense.

    They still aren’t nearly as good at preventing fraud as Google which will be interesting to see how it plays out.

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    1. Yep. There are plenty of ad networks other than AdSense. The trouble is that they all pay really badly except AdSense.

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  4. Good, then they will understand that I loathe capitalism! Perhaps i will get few ads to BUY something!

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  5. Time to dig out the hosts file again!

    Facebook following me around the internet even more is an uncomfortable thought.

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  6. I just dont appreciate this at all.Where is our privacy? We will be sold to the highest bidder.This is not cool at all. Most people dont want the whole world to know what we want to buy or not buy.What will happen with our social security numbers and credit cards and history? If it happens many people will live without the Internet and never buy online anymore..I know that I wont.Some one has already help themselves with my money already after I bought something online and the interaction was between two sellers one found out that I was looking to buy a service the other grabbed the deal without my consent ;I only found out that I money was taaken out of my account because it was more expensive…

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  7. Finally its about time they increase revenues.

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  8. Linked from my G+ stream, ugh. This disgusts me. I already knew that facebook was monitoring my activity even when Im not on their site but there is no way in hell I want these ads to follow me to other pages! Worst idea ever!!! Only reason I still have facebook is because some of my friends wont use other networks (g+, twitter) and I mainly only use their mobile app because I hate the targeted ad clutter on their webpage.

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  9. The problem with ads on Facebook is they look terrible – hence CTR’s of 0.02% (my own experience). Extending beyond Facebook would open up much better performing IAB ad sizes… like the ones that get CTR’s of 5%? Why Facebook doesn’t put them on Facebook.com, is completely beyond me.

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  10. TinyVox: Tape&Tweet Friday, November 23, 2012

    Mobile ads suck because CONTEXT is skimpy, which is what AdSense needs. FB has all the context it can get about a user, and is in a position to deliver ads worth clicking on mobile.

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    1. Michael Valston Monday, November 26, 2012

      Who is the go to guy/gal for best practice FB mobile ads? Are you saying that CTRs on FB mobile ads are going to be appreciably higher and will this also extend to ipads?

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  11. Does Ghostery even curb Facebook’s incessant tracking?

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  12. Hey great idea. Now all the people who thought it was a good deal to hand over all their personal information to Facebook can enjoy a new service directed precisely to them. Meanwhile the rest of us will have to do with ads that don’t appeal to us, except maybe by chance. Imagine our regret.

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  13. the ads are going to be crap if they are based on my likes and dislikes on facebook! garbage in garbage out..

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  14. That’s a brilliant analysis of a brilliant Facebook strategy. I would go as far as predicting a revenue jump of up to X5 over 2 years. It’s theirs to lose.

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  15. Soooo goodbye facebook and hello new myspace then.

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  16. I wonder what will happen to the price of Facebook ads when they put them on external sites. I imagine they’ll become more expensive for advertisers, making them less attractive.

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  17. Hi, seems to me that there are so many “beginner internet marketing sites” it will make my head spin! I have spent many many days and nights just trying to figure out what is true and what are scams, it has been very exhausting for me! I want to help other people just like you! I am going to show you what I created so you finally find a starting point and learn how to make money online? its getmoneywiz “dot com” “one word” And just for the record I am not a “GURU” be any means, just a regular family person like you trying to start making money online from my home, “it’s not easy, its not a get rich today button!” It’s just information for you to read and you be your own judge, I hope this helps and Thanks

    Batags

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  18. I could not care less about advertising, or if I get adverts while not on Facebook as it has been normal bullshit they do anyway. I am continually getting spam based on words or phrases I have used for years now ,that is known as spam & fishing. Now they want to make it legal. I have problems with them selling our info because they have no control over that information or what it will be used for & we don`t know what information about us is actually being shared . WE only have the word of the CIA on that. Oh yeah we can trust the CIA they are good people,plplplplpl. The thing is they could access all the info directly at anytime anyway & have been ,don`t be naive. I don`t care because my opinions & movements are such that they are witnessing their own destruction & they can watch it all on the net. No matter what they do or say, no matter what law or ruling they make the critical reaction has been going for quite some time. The information they have on me is from the internet is nothing compared to what they already had before the net even started, You name it psychological profile ,genealogy, DNA sample, Financial brief, friends & family profiles, Tracking history, Arrest history, perceived IQ level within the restrictive limitations of their own intelligence & their gullibility, at my discretion. Whatever they learn now is only by the fact that I have no illusions about what information they have on me. The fact is that the ratio of information getting to the public far outweighs anything they can learn new about me that has any real train of direction they can clearly extrapolate & they never know when the next installment is due or how it will make its self known. Truth is move two &move three are already out before they can deal with move one. I am not alone. Thus they are outgunned & will be restrained ,confined ,isolated & will suffer severe psychosis ,oh too bad. Should not play mind games with real minds, it`s painful. WE are dealing with seventy & eighty year old ,delinquents who need their bum smacked.

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  19. This has been anticipated for years not a surprise

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  20. Jonathan Martin Saturday, November 24, 2012

    what is facebook? I don’t know and don’t care to know. No time to waste.

    And, for those smarties- that think they are too smart – I have 150+ research papers, 4 books and 20 patents.

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  21. Jens Bredal Mikkelsen Saturday, November 24, 2012

    Sounds interresting and just about time they did this.

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  22. True true Eric

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  23. phd guy, PhDguy Saturday, November 24, 2012

    I have seen a article on phdguy website http://www.phdguy.com about future of web and death of facebook.

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  24. this is going to be more powerful than just a 2x existing FB revenues– this is clearly THE FUTURE of FB’s business model, and potentially every other social media publisher (twitter, pinterest, etc) out there. through FBX, FB has access to billions of impressions of remnant inventory that they can make more contextual to the end user, which is 1) a win for FB (by not further compromising their own UI/UX with ads), 2) a win for the marketer (because they are able to target traditional display through FB’s data set), and 3) a win for the end user as regular ol’ banner ads all of a sudden become a lot more contextual. yep– that’s WIN^3!

    [disclaimer: i'm slightly biased as i'm the CEO of localresponse, which makes traditional banner ads more contextual leveraging all public social data, including twitter-- we see these ads perform ~10x better than the average.]

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  25. As far as I can see Facebook has not confirmed any of this. The link in the Forbes article is a dead link.

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  26. Jive Guru Dave Sunday, November 25, 2012

    Remember when Google was a great search engine? Now it steers you to its advertisers. It’s a lot harder to find what you’re looking for, but easy to find what Google’s advertisers want you to seek. Wish a newcomer without ads would come along. I think I’d even pay a subscription for it.

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  27. So, I have two choices. Either care about my privacy or be a social outcast in the eyes of modern media.
    I’m pretty happy with the second choice.

    There even was a news article in a local magazine about how there’s bound to be something wrong with you if you are not in facebook and how the young males committing school massacres and other acts of violence are a part of that group.

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  28. Bruce Carlisle Sunday, November 25, 2012

    It seems to me that there is one really important distinction between Google and a theoretical Facebook network. When I begin a search on Google, I am actively indicating an interest in the subject I search. That interest is commercial in nature often enough for google to make billions by showing me paid contextual links. Ads that will follow me on Facebook based on my actions will much less likely to be based on my commercial intent, largely because the ads will show up, yes based on interests I’ve shown, but far less likely because of any current commercial interest or intent. Which means the ad values will be ROS ad retargeting network-like as oposed to Google like and it’s a huge difference

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  29. Silvanus Slaughter Sunday, November 25, 2012

    If it is advertised, I avoid it.
    So there.

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  30. Ads?
    There are ads on websites?
    I had no idea.

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  31. Can’t find anything on fb-advertising.com

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  32. The combination of the AdBlockPlus and Social Fixer extensions for Firefox makes Facebook wonderfully usable, by the way.

    (If sites don’t like users using ad blockers, the very first thing to do is not make them want to install an ad blocker.)

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  33. I don’t want ads following me all over the net based on my info on Facebook. That is too much like Big Brother and then social sites become workhorses for corporations who will pay the highest bidder for our info.

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  34. I wouldn’t mind ads if they targeted me with my tastes rather than some generic tastes between my age group. Sure, it is cheap to target a larger audience but the fail rate is also high with that sort of technique.

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  35. Simple navigate to http://www.ghostery.com and get over with this.

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  36. Devon Divine Artis Monday, November 26, 2012

    I heard someone talked about privacy … Privacy died a long time ago way before Facebook. Believe me I can buy a list that you are on … and send your some direct mail marketing.

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  37. Considering how poorly targeted FB ads are (at least in my case), I don’t have much faith in their success externally. This also could be the dealbreaker that will switch me over to G+ permanently and the deletion of my FB account.

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  38. So now instead of asking your website inside FB, you return to the good old way of creating your website outside this network and refer a link to it.

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  39. This may be true, but if their attempt at ‘profiling’ my likes is any indication, then they are way off the mark. None of their ads have come even close to why I like the things that I truly like. Instead, they have been focusing on ads from interest likes I made years ago when I first signed up or what people that are connected to me like. – The ads don’t even fit those likes very well. Then they changed their rhythm with the promote button, which statistically changed what they allow me to see from my connections, which only irritates me, and their profile/ad campaign has gotten worse. Then there are the cat pictures, and the recent political campaigning that will drastically change the statistics in so many random ways. So I am not sure google should be too worried – concerned, but not worried.

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  40. As a FB end user this news makes me happy. Like most FB users, I’ve gotten used to the advertisements on FB that offer deals and promotions. Before that, I was used to the banner ads on the side of the FB screen. But what I cannot seem to get used to is their new mobile ad campaign that “seamlessly integrates” the sponsored stories and banner ads into my newsfeed. What bugs me so much is that I feel like the ratio of ads to ACTUAL newsfeed stories from my friends is way to high. It seems like I get about 3 or so ads for every 3 or 4 stories. It is completely intrusive in the FB user experience.

    What’s worse, as this article points out, the sponsored stories campaign is not even that effective b/c users tend to just click through these ads for the most part.

    I think this plan to create an external advertising network could be a win-win for FB AND the user. I get tailored ads when I’m web surfing based on my FB data (which FB and advertisers are already using anyway, so no apparent change to the risk in my “privacy”). And, hopefully…. HOPEFULLY…. this new strategy will result in movement away from the frustrating (and apparently fruitless) sponsored stories that are clogging up my newsfeed.

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  41. Hilarious! I rarely see “relevant” ads with Google, so if I “like” those various angry cat posters on FB, I presume I’ll see all sorts of ads for cat products….despite not owning a cat nor knowing anyone who does. My favourite “relevant” ads are the ones in Spanish…for feminine products… despite the fact I’m an English speaking guy. WTF?

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  42. My site is a facebook cover designer and library. free
    called http://whippity.com/

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  43. people, why is everyone upseat that FB will be following you around. You think, every network, exchange, single publisher on the web doesnt already? Its about user experience too. Yes advertisers want your data, you will be sold at the highest bidder, BUT that bidder will be a relavant advertiser trying to reach you in the best fit environment.. If not, then M18-34 would be getting Playtex ads on ESPN and W18-34 would be getting Gillette Razor ads on iVillage. Is that the type of experience you want? Is there anyone out there that thinks US Census data or Polk Auto data or Equifax data hasnt been sold to advertisers for years in the direct marketing space? If so you’re just fooling yourself into thinking that FB is the first company to use your behavioral patterns and “likes” to reach a consumer.

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  44. Google ads work because they are based on your search queries, so they know you have a genuine and immediate interest. Facebook is not used as a search engine (except maybe for people), so I don’t see it having much hope of serving ads (especially off-Facebook ones) that will be as effective as Google’s.

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  45. Good for marketers and businesses, and probably good for user experiences in the long run too. I think social media users tend to forget that these networks are all optional, and that there are other ways to be social with other human beings, that do not require a computer or mobile phone. No sense in getting into a huff about it.

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  46. I was expecting this for a long time now. FB’s database is worth 000’s more than it will ever get from in-house banner ads!

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  47. Forget about the ads for a min….its the data that is valuable to overlay across what is essentially a dumb pipe. If Facebook layer their data across the WWW you can target against it which to be honest is pretty impressive data. Only other guys who can do this is the telco’s who have privacy issues that will be a nightmare to manage. Only way facebook can do this is because of the size of their base. If they just charged a small percentage for added targeting based on user profiles I think it would be very big business!

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  48. Some good ideas on here but when starting up in business the last thing you can afford is paid advertising try down the free ad route.Please view my blog for a few tips and tricks http://wp.me/p2LCig-j

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