One Platform to Rule Them All
With any discussion of Facebook, it’s hard not to reflect back on the company’s history, a history colorful enough, and influential enough, to already have spawned several books and a major motion picture. Regardless of what happens to the company in the future, although we must say that investing in the company at a valuation of $15bn no longer seems like a bad idea, Facebook has become something integral to people’s lives. For those who had access to the internet in the 1990’s, especially if they were of high school age or older, Facebook today resembles the role that AOL played for that generation. Whereas Google has organized others information, generally without implied consent, Facebook has organized people’s information with expressed consent. It is the social hard drive in the sky. Ask Facebook users which they couldn’t live without, and it wouldn’t come as a surprise to learn that a vast majority would pick Facebook over Google.
For the near future, Google will continue to out-monetize Facebook. Last week we talked about the advertiser perspective and the challenges that come with targeting based on interests as opposed to intent. Interests can be a powerful tool, but for many commercially focused sectors, it can’t quite do what intent does. Take something like maternity, for example. Google far outpaces Facebook in its ability to insert itself in the transaction flow. Based on time spent, though, Facebook should earn more money. They can’t, just yet, because they have to infer whether a person is in that life stage versus being given some more definitive information like a query for a specific brand or someone reading a site about different makes and models. The inference issue will mean a continued slower advertising ramp (on a per user basis) than Google, but it certainly hasn’t meant that advertisers or Facebook have given up on it as a monetization vehicle.
The Facebook platform might not have the breadth of advertisers or overall monetization of Google, but the question on everyone’s minds now is not, should I spend, but how can I make it do more. Some of that growth comes from basic blocking and tackling. It means creating a platform that earns the trust of the advertisers and one that creates the right balance between the needs of the marketer and the needs of the user. Facebook pioneered the notion of crowd-sourced ad feedback. That little “x” on the corner of each ad, when clicked, prompts the user to explain why an ad was nixed. (On a side note, it’s a little confusing as the same behavior is used for simple closing of alerts not subjective votes.)
Blocking and tackling doesn’t always produce “wow” like changes. The ad operations and optimization tweaks often go relatively unnoticed. Perhaps second only to journalists, performance marketers keep their eye on any changes made to the Facebook system. Not surprisingly, it was a journalist and then a performance marketer who pointed out an unannounced change they saw with the ads. For the first time, certain ads started to show what could only be described as a display URL. It is a staple of almost every self-serve, pay per click interface. It hasn’t been for Facebook. And, it has made sense visually as to why not. Their already narrow units do not allow for the same display as others. And, in spirit, their ads have always been closer to mini-banner ads than search ads. And, let’s not forget, their interface doesn’t have a spot for it.
Depending on the particular collection of ads, you might think you notice a pattern as to which ads show up with Display URL’s and which don’t. It seems for example that the vast majority of externally pointed ads do, while those sending traffic to Facebook pages do not. Other times, it seems as though branded ads do not have them, but just as quickly, you’ll find examples that counter that hypothesis.
We’ll just have to wait and see what becomes of the display URL. That it might end up forcing people to create and send traffic to pages with social context could very well be the case. The more traffic and metrics they can collect on social context placements, the better their targeting and ultimately yield.
What is more important than the display URL was a different ad, one advertising Facebook’s partnership with Target who now sells Facebook Credits gift cards. This is an absolute game changer and the significance can’t be overstated. It took a while, but the platform is starting to look unified. In the beginning, there was a wild west of applications. That landscape has not only matured, but has proven to be integral to the Facebook experience for many users. Going to Facebook for them means interacting with applications. The game manufacturers tried no shortage of methods to monetize users and countless ad networks and payment platforms – both currency and ad supported – arose. Facebook did what any savvy entrepreneur would. They let others figure out the business model and then came in and used leverage to get a piece.
When it comes to buying virtual currency for the games that people play, Facebook now gets a big cut of total transaction revenues. We don’t know the numbers, but it should be a multi-hundred million dollar bump for them, all from online transactions. The offline to online transaction method has proven itself in Asia and in the United States for many of the more popular online role playing games. Some of the largest companies in Asia make the vast majority of their money by essentially selling a brand of quarter that can be used to play their games. And with this now unified way to spend and make money, Facebook has the master platform. It is the platform that will enable them to hit the Google like and then some monetization per user per year. We always knew some of Facebook’s biggest spenders were its application makers. Now, we see a clear benefit to Facebook, ad dollars plus user dollars. It’s brilliant, and that virtuous cycle more than display URL will take them from $2bn in revenue to double digit billions.
