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I don't work for Facebook and have no inside knowledge, but here's what I think. It helps to step back and take a look at the big picture. Companies have a cer
by ajays 16y ago
I don't work for Facebook and have no inside knowledge, but here's what I think.
It helps to step back and take a look at the big picture.
Companies have a certain number of advertising dollars. Companies that are really big in the consumer space spend large chunks of their revenue on advertising: consumer goods (soap, etc.), durables, autos, pharma, etc. This money is not going away anytime soon.
Now, if you're an advertiser, you want to advertise where there are people. This is why you see the MetLife blimp over big football games. The decals on the NASCAR cars. The funny ads in the SuperBowl.
For an advertiser, the holy grail is to achieve laser-like targeting: to be able to advertise to exactly the person who's most likely to buy his product. 80 years ago, the best option for advertisers was the radio. But it's a broadcast medium; you have no idea who's listening. So you make some intelligent guesses based on the program content and hope for the best. What's the ROI on radio ads?
20 years ago the best was the TV: the content was varied, so you could make better guesses. Want to appeal to the male 18-24 market? Advertise in football games, NASCAR events, WWF "Rumbles".
Then came the Internet. An advertiser could make even better guesses about the user; and more importantly, the advertiser could keep track of every impression, every click and every action. This is good, but still not good enough.
Broadly speaking: if you (advertiser) are willing to pay $X for a 10% chance of reaching the right audience, then chances are you'd be willing to pay $10*X for a 100% chance of reaching the right audience. Right?
And finally there's Facebook. The genius of FB is that the users have, on their own accord, given FB detailed information about themselves. Thanks to their social connections, they can't lie much either. I mean, it would be hard for me to claim I'm a female and single when my girlfriend is a connection on FB.
People keep thinking that FB will make money from the pageviews. IMHO, that is not the case. Yes, they have a bazillion pageviews and minutes spent online; they could make a billion or five per year easy with their pageviews.
The goldmine here is the "like" button. It will allow FB to spread its influence far and wide; and more importantly, it will allow FB to influence advertising on 3rd party sites. Instead of buying advertising on, say, CNN and paying $2/CPM, an advertiser will be able to hyper-target a user and advertise to that specific user on CNN (or wherever that user is). User + Content = More Value for Advertiser.
So while CNN may get $2/CPM for its pages currently, by using the "FB Ad Network" they will be able to make more, and give a large cut to FB too.
Anyways: that's where I think the value lies with FB. Sorry about the long comment. :-)
- djhworld 16y agoMany supermarkets and shop offer their customers a loyalty scheme where they can accrue points through purchases and spend them either in store or on special deals the shop offers. The catch? The shop collects data on your habits. They already know your name, address, date of birth so they can determine whether you're single/part of a family/old/young. But the real value is matching up that profile of your life with your shopping habits, every transaction you make is tracked and collated to form an evolving picture of your relationship with the shop you're shopping at. This allows the retailer to target their advertisements to your needs accordingly and even gives a customer profile for people in the area so the shop can tailor the layout of the store to suit meet the needs of their demographic. In my personal opinion Facebook is the step up from the loyalty card. In exchange for 'free use' of the site, you're giving away crucial details about your life that can be packaged up and sold on to businesses. Data mining is essentially what facebook does, it's just they surround it with a wrapper that people find beneficial to their lives.
- AmitinLA 16y agoThis is a logical, well-thought out argument that I largely agree with. The one thing I wonder is if, as brand advertising is increasingly transferred to the internet and those dollars are spent on sites like Facebook, we see overall spending drop and an increase in spender (and consumer) surplus to the detriment of the middlemen. The analogous example is Craigslist -- a site that destroyed millions (billions?) of advertising revenue and that will likely never be recovered but was overall a net gain for consumers and advertisers both in a way that is hard to quantify.
- earl 16y agoAlso -- the exact numbers I've seen might be proprietary, but here's part of the value prop of online quantitative advertising: if you take ad spend and divide by minutes spent in a bunch of areas such as {TV, magazine, newspaper, online}, online is an extreme outlier -- far lower than all the others. That indicates that most likely there will be at least a further doubling or tripling of online advertising spend. Add in trends you see like people ditching cable (just in the bare beginning, but itunes / apple tv, netflix, roku, googletv, et al are beginning to be a real competitor for people who aren't super techy) and it's not unreasonable to assume increasing movement of tens of billions of dollars of brand ad spend online. And fb will be a primary beneficiary of all this because of their ability to do very precise demographic targeting -- want to show your ads to eg self-identified unmarried asian women who like tennis, who are between 24 and 35 years old, and who have a kid in the house? fb can make that segment for you with high confidence.