Thursday, February 4, 2010

Facebook's Advertising Potential

I have become more active on Facebook of late. Of the 350 million registered users, I am now one of the 175 million that log in every day and one of the 35 million that update their status. Other statistics from Facebook's own press room are even more eye opening:
  •  2.5 billion photos uploaded to the site each month
  •  3.5 billion pieces of content (web links, news stories, blog posts, notes, photo albums, etc.) shared each week
  • 3.5 million events created each month
  • Fan pages have created more than 5.3 billion fans
With such enormous reach and such a bounty of user data, how big can Facebook's advertising business become? Can it possibly approach Google? Estimates peg Facebook's ad revenue to be in the $1 billion range for 2010, a tiny fraction of Google's estimated $25 billion. Yet traffic to both platforms is similar.

I spent the last week documenting every ad I was exposed to while logged into Facebook. Most of the ads were from direct marketers - insurance brokers, credit card companies, online games from Zynga such as Mafia Wars, as well as ads promoting Facebook ads. Many of the ads screamed out my age or college alma mater, along with an offer of some sort that provided a cheesy peek at Facebook's targeting capability. Another peek, less cheesy, came when I included a photo in a status update and was immediately served an ad for a new camera; although this might have been a coincidence?

Google's ad revenue has grown so explosively because the company connects advertisers with customers who are actually looking for things and only charges when an action is taken. Facebook provides marketers something much different, but perhaps even more compelling.

A blogger describes Google's ads as "pull advertising" (the consumer is actively pulling the information) and Facebook advertising as "push" advertising (the advertiser is pushing their info in front of a much larger group of consumers who are ideally targeted, but not necessarily in market at that moment.)

Or as an another blogger puts it: "While Google is fundamentally keyword-targeted, meaning advertisers bid on keywords, Facebook Ads are fundamentally profile-targeted, meaning advertisers bid on people."

And while both companies go to great lengths to protect the user experience, Facebook's ads are significantly bigger than Google's and include images.

It seems Facebook is just getting their ad business going and is relying mainly on low hanging fruit from direct marketers (Zynga alone represents a significant percent of Facebooks entire ad revenue) and their sales partnership with Microsoft. But with the ability to target ads based on user profile data along with other user information and activities to an audience of millions, Facebook is sitting on an enormous potential ad business that will appeal to direct marketers and brand marketers alike. (Google is overly dependent on direct marketers and aggressively investing and developing products to engage the brand marketers who represent much bigger budgets.)

Additionally, Facebook's brand fan pages, which are free to use, have become an essential ingredient in every business's marketing plan.

A recent Mashable article concluded: "Today, Facebook stands on the precipice Google inhabited just before it became a top money-maker. By taking a page from the Google playbook, and aggressively marketing — and explaining — its power to influence buying decisions, Facebook ads could become as essential to 21st Century marketing as the yellow pages were in the 20th Century."