Ask Mark Zuckerberg and Sheryl Sandberg why they took $200 million from Russia’s Digital Sky Technologies and the Facebook duo will use words like “flexibility” and “cushion.” The word they really want is time.
A year ago when MySpace started doing it — or really, even earlier — Facebook could have started splashing huge portal-like display ads across its site and, with its hundreds of millions of users, never needed to consider taking funding again.
But instead, Facebook actually stripped ads from its site so that even fewer of them showed.
Now, taking $200 million at a $10 billion valuation, Facebook is buying time — time to figure out a way to make money in a way that does not bring to Facebook.com the big ads like the kind you’ll see on the front pages of Hulu, MySpace, Yahoo, AOL, YouTube and every other site in the brand advertising business.
Why did Facebook and Zuckerberg make that choice a year ago and then again today?
Because Mark Zuckerberg is against brand advertising. Or at least he’s against it in the sense that demand-generating, brand-advertising is a thing that interrupts, obstructs or even merely distracts users as they move around a Web site.
We’ve heard this from a former colleague of Mark’s, but you don’t need secret sources to know its true. Go to Facebook.com right now and without clicking on anything, count the ads. Last I did it, I got zero. Now go to MySpace.com and do the same thing. I count four units. On Hulu.com I see two.
During today’s conference call to announce Facebook’s funding, Mark said his idea of brand ads are ads which people interact with the same way they do with their friends. But that’s not how brand advertising has always worked. Brand advertising has always worked by interrupting content with commercials on TV and radio and with glossy spreads and fullpage ads in print. In part, this is because the job of brand advertising is to generate demand for products where there was none or little before. It’s targeted to people who weren’t necessarily looking for it.
What’s exciting is that Mark’s stance pits him against this history — against this way things have always been done. So far, history is winning. If it weren’t, we’d be talking about Facebook’s day on the Nasdaq, not it’s funding. But without today’s funding it wouldn’t even be a fight. Facebook wouldn’t have time to experiment.
Because of it, there are still three possible outcomes to this conflict:
- Facebook could develop a product that proves history wrong and Mark Zuckerberg right. This product would provide demonstrable ROI for advertisers looking to generate demand in their products without interfering with users at all. That’s the holy grail.
- Facebook could give up on advertising altogether after finding a new revenue-generating product to replace it. During today’s call, Mark brought up micropayments and virtual goods as possibilities. In a later interview with Kara Swisher, so did Facebook COO Sheryl Sandberg. We’ve written about Facebook’s plans to build a payments platform and to serve ads on third-party sites.
- Even after the extra time today’s funding buys before Facebook must turn toward profit-making, innovation could fail and history could prove Mark Zuckerberg wrong, forcing Facebook to sell site-takeovers and other glossy brand ads — just like everyone else.