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Facebook - Challenge and Opportunity

Post IPO the pressure has clearly been on Facebook to develop new ad models, crack mobile and drive their average revenue per user but I'll say now that I don't think this kind of monetisation is going to be their greatest challenge. There seems to be some momentum behind the development of new ad products and research to prove value, and at last they seem to be thinking differently about how to apply all that data they have on their users including models built on both destination and distributed thinking - integrating Facebook data with third party data to improve the sophistication of targeting not just on Facebook, but out there on the web.

The launch of Facebook Exchange for example - the real-time bidding system that enables users who have been tagged on a third party sites to be re-targeted on Facebook and shown ads that are related to their web-browsing. With the amount of display inventory that Facebook has (a recent comScore study suggested that Facebook could represent more than 25% of display inventory on the web) this is no small opportunity to extend re-targeting strategies into a new area that was previously off-limits.

Similarly, the new Custom Audiences product allows advertisers to plug-in data they already hold on customers (email addresses, mobile numbers, Facebook UIDs) into Facebook in order to re-target them with specific messaging whilst they are on Facebook. The capability to re-target a list of people from a pre-segmented database with context-specific ads is really interesting, and early indications seem to be that it leads to higher conversions at lower cost. 

On mobile, where they have had a lot of negative press, newer 'native' ad formats are proving more effective and contributing towards a not insignificant 14% of their revenues now coming from mobile. 600 million active users on mobile (a number which continues to grow rapidly) and higher levels of engagement than desktop (Sheryl Sandberg said recently that the average mobile user is 20% more likely to come back on a given day) gives them plenty of opportunity to test and learn and a great foundation from which to rapidly scale the right model/s.

So many of their recently launched ad products play nicely into the some of the areas of digital advertising that are showing healthy growth: native advertising formats, re-targeting, and the real-time, programmatic trading of inventory. And efforts are being made to prove where the real value in advertising on Facebook may lie. Their partnership with Datalogix is enabling them to create accountability-driven tools that help establish value beyond the click, better illustrate the relationship between reach and revenue, help advertisers to understand optimum frequency (all very TV-like). Meanwhile tagging technologies are helping establish a more direct data-driven link between ad exposure (as opposed to simply ad-clicks) on Facebook and conversion.

Back in July Business Insider posted a visual drawn by a 'source plugged into the ad tech industry' which, in their usual excitable manner, they described as 'Facebook's next $10Billion business'.


The visual described an area of opportunity that I've long thought had potential: using Facebook data to target advertising on third party sites. Well now it seems that they might be about to do just that, via an ad network that extends beyond their walled garden. This is interesting because it takes a truly distributed approach in the application of their unparalleled mine of user data beyond Facebook itself. In this model, and like Google Ad Sense, you don't need users to come to your domain in order to monetise the relationship you have with them.

Which brings me to what I think is their greatest challenge. In order to pave the way for the kind of ad exhange described above, Facebook have made yet more changes to their privacy policy to ensure they can use the information they hold about you to display ads to you elsewhere on the web. Chief Privacy Officer Erin Egan is quoted as saying: “Everything you do and say on Facebook can be used to serve you ads...our policy says that we can advertise services to you off of Facebook based on data we have on Facebook.”. No confusion there.

I'm not going to bang on about privacy here - Facebook have always pushed the boundaries in this respect and often taken a three-steps-forward, one-step-back approach to settings, defaults, and use of user data. But the point is that this is always a balance, and a really tricky one at that.

In August, Danah Boyd talked about how Facebook was becoming the 'teenage version of email', saying:

“What’s so interesting about Facebook is that it’s not interesting to [teens]. That’s a big challenge for Facebook -- not because people won’t use it, but when they’re not passionate about it, you see a very different kind of user behavior than when someone is passionate about a service.”

The piece suggests that the sheer scale, size and ubiquity of Facebook is acting against it, with teens feeling somewhat overwhelmed by large friend groups, using Facebook for the more utilitarian type of conversation, and increasingly reserving the best content sharing for other networks including Tumblr and Twitter. The lack of asymmetric follow (such as that which characterises Twitter, Instagram and even email) can't help with this.

Facebook 1 

Whilst the article quotes Comscore data suggesting that other social sites are chipping away at Facebook's dominance with this audience, I'm not about to suggest that Facebook is in trouble. It remains far and away the most popular social network amongst teens, and people stay where their friends are so the network's ubiquity also creates its own kind of inertia. But these things are always a trade off and we've seen examples before of rapid declines in usage on particular platforms from this audience (MySpace, Bebo). So as Facebook push the usage of ever more powerful targeting tools that require deeper and more visible use of user data, there has to be a risk that they get this balance wrong. And losing the interest of this kind of early adopter audience cannot be a good thing. 

Earlier this year the American Customer Satisfaction Index (ACSI) found that Facebook had the lowest customer satisfaction rating of just about any social network. So as it reaches peak audience in more mature markets could their greatest challenge be how to avoid becoming uncool?

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