Facebook's Social Ad Network: What We (Think We) Know So Far

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Just as Google is preparing to take Facebook head-on with its own social-networking platform, it appears that Facebook is preparing to take on Google with its own social ad network. The announcement of what people are already calling SocialAds is expected next week on November 6 at New York’s ad:tech conference (a day after Google was originally supposed to announce a new set of open APIs and third-party apps for its social network, Orkut—now expected to be pushed a few days).

What is SocialAds? We’ll have to wait for the actual announcement to see, but here is what we know so far (or think we know):

It will be how Facebook will actually start to make real money—both through ads on its own site and on other sites through a new ad network it is about to launch (presumably with its ad partner and new investor Microsoft). SocialAds will be an attempt to be like Google’s AdSense, except that it will allow ads to be targeted to Facebook members’ individual interests and profile data rather than the text on a given Web page. This targeting will be done by placing cookies on Facebook members’ browsers when they visit the social site, so that they can be identified later when they visit other sites hosting SocialAds. Facebook is already experimenting with targeting ads on its own site (through its Facebook Flyers program) based on demographic and psychographic data that it culls from members’ profiles. With SocialAds, it will be able to extend that targeting across the Web.

It remains to be seen whether targeting ads based on people’s self-expressed interests and demographics will result in better response rates than contextual ads like AdSense or search ads based on the specific intent of what people are looking for at that very second. And even if Facebook does indeed launch such an ad network, it will only be able to serve ads to people who are Facebook members—which is a large and growing number (Facebook claims 50 million), but still a fraction of all Web surfers. In contrast, Google’s AdSense ads can be served against anyone on the Web. Still, the number of Facebook users is large enough that other Websites would want to serve ads to them, and for advertisers an ad network would simply expand the reach of their existing Facebook ads.

What will be really interesting to see is what form these ads will take, and will they become social applications in and of themselves that spread virally like a Facebook app? It will also be interesting to see whether Facebook launches this social ad network on its own, or with its ad partner Microsoft.

You’d think that the ads would be served through Microsoft’s Ad Center. Why reinvent the wheel? Not to mention that Facebook might be contractually obligated to work with Microsoft on any ads served in the U.S., even those not on Facebook proper. If that is the case, that $240 million investment that Microsoft put into Facebook may soon look like a bargain indeed.

But what if the deal with Microsoft only covers ads on Facebook.com? If Facebook goes it alone on this one, it would confirm that it sees its financial future as being an ad network in its own right. It has already shown signs of this ambition. When Facebook announced that Microsoft would now be its ad partner internationally as well as in the U.S., for instance, the expansion of the relationship with Microsoft covered only remnant ads overseas (i.e., the ad inventory that Facebook cannot sell itself). This is the opposite of the relationship in the U.S., where Microsoft controls and sells the main ad inventory on Facebook. Ultimately, Facebook would be more valuable if it can create and control its own ad network.

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