July 12th, 2007

Facebook Monetization: Lessons From Google

by

Banner ads on Facebook is a dumb way to monetize. Same on MySpace. People don’t pay attention to banner ads on social networks because they are too busy paying attention to EACH OTHER. It’s no surprise that people are complaining about low click through rates on Facebook display ads.

But that doesn’t mean that Facebook won’t figure out how to monetize its growing userbase. Let’s not forget that even Google took a while to figure out how to monetize — and the first version of AdWords was based on a fixed cost per click rather than the liquid marketplace that now cranks out $10 billion a year.

So how can Facebook monetize? Well, let’s look at Google’s breakthrough. Google’s core search value proposition is serving up links to relevant sites. AdWords ads on Google search pages also serve up links to relevant sites — a perfect value match.

So what is Facebook’s core value proposition? Connecting and communicating with friends. So can Facebook sell companies the ability to connect and communicate with Facebook users as “friends”? Well, the problem with that is that most people don’t want to be friends with companies. The beauty of AdWords is that the user interaction with the organic link and the paid link is exactly the same — click and find something relevant.

How, then, can Facebook allow companies to buy their way into real connections between friends? Companies that have built Facebook apps have benefited from real criends connections through Mini-Feed notifications that one of your friends has added an app. Having companies buy their way into the Mini-Feed would probably corrupt the value of the feed pretty quickly. The beauty of the viral marketing of the Facebook apps is the my friend is actually USING the apps.

What if there were a way for companies to identify which Facebook users were actually using their products, and then create a mechanism for the users to highlight their use of the product to their friends — and then put those users into the economic value chain.

I’m just making this up — but it’s clear that Facebook and other social networks are in need of the aha moment that happened at Google when someone realized — hey, if we rank the ads based on RELEVANCE as well as price bid, then people would be more likely to actually CLICK on the ad, and we’d make more money.

Comments (30 Responses so far)

  1. s poor performance on the advertising front makes it worth less (or worthless), or whether it just means that advertising isn’t the route to profit for a social network, as my friend Scott Karp of Publishing 2.0 describes here. I, for one, hope that Facebook does do an IPO so that we can let the market decide what the company is worth. Share This [IMG]

  2. en torno al 0.04% con más de 1.4 millones de impresiones (reachstudents.co.uk, vía ZdNet). Con estos números, está claro que Facebook tendrá que esforzarse en buscar alternativas, ya sea con otro tipo de publicidad o mediante otros mecanismos. Scott Karp (vía Tecnorantes) aboga por intentar extrapolar el éxito de Adwords ofreciendo a las empresas y usuarios recomendaciones para establecer conexiones que interesen a ambos. No lo veo muy claro, aunque en parte ya está sucediendo mediante el mecanismo

  3. en torno al 0.04% con más de 1.4 millones de impresiones (reachstudents.co.uk, vía ZdNet). Con estos números, está claro que Facebook tendrá que esforzarse en buscar alternativas, ya sea con otro tipo de publicidad o mediante otros mecanismos. Scott Karp (vía Tecnorantes) aboga por intentar extrapolar el éxito de Adwords ofreciendo a las empresas y usuarios recomendaciones para establecer conexiones que interesen a ambos. No lo veo muy claro, aunque en parte ya está sucediendo mediante el mecanismo

  4. Facing Facebook: Tech Beat asks why Facebook should accept a rumored $6 billion purchase offer from Microsoft when its go-it-alone potential greater. Publishing 2.0 explores the apparent myriad ways Facebook can monetize its growing network of connections.

  5. + Discussion: Publishing 2.0, HipMojo.com, ZDNet, Unit Structures, Oliver Thylmann’s Thoughts, Mashable!, Master of 500 Hats, All Facebook, Valleywag, John Furrier, CostPerNews, broadstuff, The Last Podcast, Portfolio.com and hubbub

  6. Some people seem surprised today that Facebook, a radical disruption in digital media if ever we saw one, isn’t a very good platform for the old model of monetisation via banner ads. Banner ads! Scott Karp swiftly debunks the notion that banner ads could ever have been the solution here. Banner ads are what media first came up with when we still thought in terms of things “moving online” and tried to replicate the old print/TV/etc model of surrounding (or – for a while

  7. en torno al 0.04% con más de 1.4 millones de impresiones (reachstudents.co.uk, vía ZdNet). Con estos números, está claro que Facebook tendrá que esforzarse en buscar alternativas, ya sea con otro tipo de publicidad o mediante otros mecanismos. Scott Karp (vía Tecnorantes) aboga por intentar extrapolar el éxito de Adwords ofreciendo a las empresas y usuarios recomendaciones para establecer conexiones que interesen a ambos. No lo veo muy claro, aunque en parte ya está sucediendo mediante el mecanismo

  8. has it right

  9. Some people seem surprised today that Facebook, a radical disruption in digital media if ever we saw one, isn’t a very good platform for the old model of monetisation via banner ads. Banner ads! Scott Karp swiftly debunks the notion that banner ads could ever have been the solution here. Banner ads are what media first came up with when we still thought in terms of things “moving online” and tried to replicate the old print/TV/etc model of surrounding (or – for a while

  10. Facebook Monetization: Lessons From Google » Publishing 2.0

  11. would either need to be purchased by developers with more resources (or by Facebook) or likely face going under. Neither of those options might sit well with users who often form an affinity for the developers of their favorite apps. (See also: Scott Karp’s excellent post on monetizing Facebook users.)

  12. would either need to be purchased by developers with more resources (or by Facebook) or likely face going under. Neither of those options might sit well with users who often form an affinity for the developers of their favorite apps. (See also: Scott Karp’s excellent post on monetizing Facebook users.)

  13. exxxxxaactly.

    http://500hats.typepad.com/500blogs/2007/07/facebook-advert.html

    – dave mcclure

  14. I was on NYT.com. Reading stories. About this and that. The ads they served (including the Adsense ads at the bottom) were entirely irrelevent. Why can’t NYT fix that? When I read a story about Italy, an Alitalia banner. Next to a Dining story about a new eatery, a discount coupon for a restaurant in my zip. You can’t do this with robots. And you’d need presold inventory. But it might be a way for NYT to stay in business.

  15. Monetizing Facebook is even simpler than that.

    Look at eBay, Craigslist, Monster, and Match.

    Facebook should either improve on their business models, or partner with them.

    Advertising is not the only way. It may not even the best way.

  16. This is bang on target. It is all about mix of relevancy and engagement. Adwords is great for that (Adsense is not, usually). Nielsen is trying to make CPM work but it is so far from reality and riddled with issues. Who has the widget that combines relevancy and engagement? That will be a big success. Maybe it won’t one “killer Widget”, more like let a 1000 widgets bloom.?

  17. The problem with these ‘social networks’ is that they are user-generated and so companies dont risk having their beloved brand appear next to objectionable content.

    What you are really proposing requires heavy personalisation (read CRM), so that companies target only their ‘most profitable’ customers for the long(er) run. That kind of ‘personalisation’ however in a social network, as opposed to amazon let’s say or ebay, will raise some serious issues regarding privacy and the protection of private information.

    That said, I agree with you that social networks really need to monetise their business. Perhaps the media industry can join then as well as they both seem to be in some trouble

  18. Take a step back for a moment, and consider Zuckerberg’s F8 launch speech;

    – Has quick revenue generation ever been on his agenda?

    – Will he struggle to carry on funding Facebook, bearing in mind a VC fund has been opened that focuses only on investing in widgets for his service?

    – Does he not speak of the ‘social graph’ (or the much heralded social OS)? Would a highly efficient advertising strategy on a social network help to foster the growth of a social OS?

    That twenty-three year old knows what he’s doing. Banner ads on Facebook is a fox-like way to monetize.

  19. The first step is to get money flowing through the site. That will happen when somebody creates a widget so valuable that people will pay money to have it on their profile. Then, Facebook will be a transactional platform, and the revenue opportunities will open up. I can think of many business plans that would work: Pay for play. Revenue sharing. Others TBD…

  20. [...] Scott Karp over at Publishing 2.0 sums up what Facebook should be doing quite nicely. Lets remember that if Facebook is the Google of social networking, then it needs to find its version of “Ad Words”. So what is Facebook’s core value proposition? Connecting and communicating with friends. So can Facebook sell companies the ability to connect and communicate with Facebook users as “friends”? Well, the problem with that is that most people don’t want to be friends with companies. The beauty of AdWords is that the user interaction with the organic link and the paid link is exactly the same — click and find something relevant. [...]

  21. [...] raíz de este articulo en Publishing 2.0 hablando de los retos publicitarios en Facebook, descubro 2 artículos que hablan de los pobres [...]

  22. Isn’t this suggestion exactly whats being done with HotOrNot’s Hotlists??

    http://james.hotornot.com/2007/07/reinventing-hotornot-part-ii.html

  23. Scott. Hot or Not have done exactly what you are suggesting with there StylePix API on Facebook.

    Sign up and have a look. Oh and please friend me :)

  24. I wouldn’t say that people don’t want to be friends with companies, period – it depends what they get out of being “friends” with a particular company – or rather people explicitly postitioned as being from a company. We’ve got a group with a thousand members and counting where people have joined (or friended us) because of the organisation we’re explicitly representing (The Careers Group, University of London). However, monetizing that relationship is quite a different matter and trying to do so in terms of click-through style balance sheet returns might not be most representative.

  25. [...] isn’t the route to profit for a social network, as my friend Scott Karp of Publishing 2.0 describes here. I, for one, hope that Facebook does do an IPO so that we can let the market decide what the [...]

  26. [...] Scott Karp on the monetization of Facebook, and lessons to be learned from [...]

  27. The new TV show Mad Men has an example of how to work into the mix the ads. They put interesting facoids about marketing spread ou in the ads. Damn them they made me watch the ads instead of fast forwarding.

    Banner have never worked very well. The ads need to be worth watching or reading. Paris Hilton washing a car, now that is creative.

  28. [...] came across a post I wrote last summer about Facebook monetization and was horrified to read the following: What if there were a way for companies to identify which [...]

  29. Scott Karp should proof-read his articles.

    But anyway, ad/brand exposure is the way of the Internet future for advertisers. Some sites, like eCirkit.com, have realized that, and eCirkit users actually get to pick the brands with which they associate, rather than weeding through irrelevant ads on which they’ll never click. When eCirkit begins integrating ad-related promotions and contests within its network and feature set, it’s game over for the competition and Web 1.0.

  30. [...] observers make an argument like this one. Essentially they argue that social networks need to develop a novel delivery system for [...]

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