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Why Ad Networks Don’t Work For Facebook

http://lifeinthenhs.files.wordpress.com/2009/02/facebook.jpg

The blogosphere is abuzz, errrr, atwitter, err, atalking (“TALKING – A NEW TOOL FROM MICROSOFT – TALKING IS THE BEST WAY TO TALK TO YOUR FRIENDS!  START TALKING TODAY!  IT IS SO EASY TO START TALKING, A TWO YEAR OLD CAN DO IT!”) about how Facebook wasn’t making any money from Ad Networks and their proprietary self-service ad platform is making all the money.  While I am a believer in self-service advertising………..

I have to say that checking out the trees in this forest is fairly instructive.

First, this data is probably wrong.  Inside Facebook revises the run rate from $150m to $50m because it turns out that the $150m includes Microsoft’s cut.  Is Microsoft really paying out a 33% rev share?  Unlikely.  It is far more likely that Facebook keeps at least double that.

Second, Facebook is courting hard-core DR guys on their self-service platform.  The ads they run are ads that Microsoft would never approve.  Those ads perform better because they are designed to.  Facebook is doing things they would not allow Microsoft to do: run brand-degrading ads that are probably illegal all over their site.  This renders higher CPMs.  True story.

Third and more important, Facebook wants them to fail.  Yeah, you heard me right.  Facebook is the reason why banner ads fail on Facebook.  Why would their self-service ads succeed when their banners fail?  Is there some magical structural difference?  Nope.  The difference is this: When you buy a banner ad impression on Facebook from Microsoft, you get exactly that: 1 impression on Facebook.  When you use the Self-Service platform, you get something a little different: A CPC campaign targeted at a man in Wisconsin who likes cheese and the green bay packers.  Exactly what you wanted.  Facebook is not passing data to advertisers on their banner network so their impressions look like the worst ads on the Internet: non-contextual, brand-unsafe, high-frequency UGC inventory.  The ad that shows there is a speculative guess with respect to performance.  The advertising version of throwing stuff at the wall and seeing if something sticks.  Advertisers have no framework for segmenting the inventory so optimizing it is impossible.  It performs like crap because it is crap.  Microsoft can’t sell that on a CPC.  Without data layered in, it performs too poorly to make money on a CPC.

Facebook is selling advertisers on the self-service platform highly contextualized, highly targeted inventory on a performance basis.  Advertisers like that.  Advertisers want to buy that.  Not high-frequency, nameless, faceless impressions.  End of story.

3 Responses to “Why Ad Networks Don’t Work For Facebook”

  1. Jason Says:

    Hi,

    You are bang on target when you mention that Advertisers want highly targetd inventory. I have a small online business and I don’t mind paying a little more if I get the audience I’m looking for.

    I get to target my ads to a specific country and to a specific demographic as well. That really works well for me. More than quantity, I would like to get quality. Because all I really need is to make more money. End of story. :)

  2. brent Says:

    Holy cow, is this clever spam? Probably gonna delete this comment.

  3. brent Says:

    Hmmm, I edited his comment to delete the spammy link to his ad network. Editorial control FTW.