Some investors and analysts are increasingly bullish on Facebook's prospects for solving the social networking monetization riddle, something reflected in the recent increase in the company's share price.
Assuming that they're right, one thing remains to be seen: what Facebook's cash cow will be. One thing is not in question, however: there is no shortage of monetization ideas the company could conceivably pursue.
One idea frequently floated is that the world's largest social network should launch its own external ad network similar in nature to Google AdSense. The logic: Facebook probably has more data about its users than any other company on the consumer internet, and with a billion-plus of them, 'FaceSense' would be well-positioned to compete.
In the past, there have been reports indicating that Facebook is working on an external ad network, or that one was nearing launch, and the buzz is back based on a report that Facebook is in "serious" talks to buy Atlas Solutions, an ad serving firm Microsoft acquired when it bought ad firm aQuantive in 2007.
Microsoft has been trying to unload Atlas Solutions but apparently previous offers weren't to Microsoft's liking. Facebook, flush with cash from its IPO and a long-standing Microsoft partner, should be able to seal the deal -- if it's really looking for one.
Does personal data beat context?
On paper, an external ad network makes a lot of sense for Facebook. The vast majority of the company's revenue comes from ads, so it's no stranger to the business. And while it has built a multi-billion dollar top line selling ads on its social network, with user growth in the most lucrative ad markets plateauing (or having already plateaued), it's not clear how Facebook will grow ad revenue internally. That's what makes an ad network so compelling.
But building a successful version of AdSense for the Facebook age won't be an easy undertaking. Thousands upon thousands of publishers rely on AdSense to monetize their websites, and for Facebook to convince them to switch away (entirely or partially), it will have to prove that it has built a better mousetrap.
AdSense, of course, is incredibly successful because Google has mastered the art and science of determining the context of a page and supplying the best ads for the subject matter. In other words, it is pretty good at mapping possible intent to content, just as it maps possible intent to search queries on google.com.
Facebook could seek to do the same, of course, augmenting the targeting with personal data, but it's not clear that adding the personal data to the mix would improve the quality of targeting enough and help make publishers more money.
It all comes down to money
At the end of the day, of course, it all comes down to money. Would a Facebook ad network be capable of making publishers more of it? We obviously won't know until Facebook tries it, but a few observations are worth making:
- While Facebook is hugely popular and the amount of data it has acquired about users should not be underestimated, not everybody uses Facebook and the amount and quality of data it has about individual users varies considerably from user to user. As such, the application of user data to targeting is likely to produce uneven results, and is not guaranteed to boost yield.
- Google has far more advertisers than Facebook, and the amount many if not most of them allocate to their search spend is considerably higher than the amount they're allocating to social. That matters to publishers, as those considering a switch to FaceSense would need to trust that Facebook will be able to woo more advertisers and convince them to spend more of their dollars with it. Possible? Yes, but it given Facebook's positioning and the reputation its ads have, this isn't going to happen overnight.
- Privacy concerns have been a thorn in Facebook's side and an external ad network could create more of them for obvious reasons. Publishers working with Facebook will have to consider the possibility that some portion of their audiences would not be comfortable with Facebook using their personal data to power ads outside of Facebook. If users find out that's happening -- perhaps when they start noticing ads that seem tied to recent Facebook activity -- it could become an issue for publishers.
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