Facebook makes it official — an external advertising network is coming soon

55 Comments

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

55 Comments

Len Holehouse

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

Kevin Foley

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!

labraou

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!

Alexis Favis

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.

Tema Frank

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.

media guy

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.

Quaffworthy

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?

rebeccalynnphelps

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.

David M

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.

Favor

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.

Nadine

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.

Devon Divine Artis

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.

davidrsilva

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.

Simone Hardy

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.

davidgerard

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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