Facebook revenue growth is finally catching up with user adoption.
Several sources close to Facebook tell TBI Research analyst Rory Maher that the company is about to hit a $1 billion annual revenue run-rate.
That’s a huge increase over the $550 million revenues Facebook will reportedly reach in 2009.
How has Facebook finally done it?
Mainly, by reaching scale. The company now has 350 million active users. Facebook.com has a Super Bowl-sized audience (or bigger) all the time. Even lousy ad products should make money against that.
Rory writes that Facebook is also a billion-dollar business because:
- Branded direct-sale inventory commands premium CPMs.
- Self-service display advertising is going nuts.
- Facebook targeting is like crack for advertisers.
- Virtual goods and search are chipping in.
Here are some details on how Facebook is making its money.
BRANDED DIRECT-SALE INVENTORY COMMANDS PREMIUM CPMS
Facebook sells campaigns to agencies and marketers through its direct salesforce. These consist of a number of different ad units from banners to more custom campaigns that incorporate brand pages.
Currently, Facebook’s rate card for these custom campaigns is about a $20 CPM, which is significantly higher than most social networks and even some of the more targeted online publishers. In addition, we’ve heard there is a $50,000 minimum spend for agencies.
We have spoken to a few agencies recently who had been using Facebook consistently this year for branding campaigns and expect to continue to do so through 2010.
SELF-SERVE DISPLAY IS PRODUCING IMPRESSIVE RESULTS
We are hearing about more and more campaigns that have used Facebook’s self-serve display product and experienced ROI above many search advertising campaigns. This is driving an increasing number of search advertisers to spend some of their budgets on the self-serve product on Facebook. The aggregate dollars here are still tiny when compared to overall search spend.
Facebook’s self-serve ads can be bought on a CPM (per thousand impressions) or CPC (cost per click) basis. We believe the majority of advertisers who use them opt for CPC.
Here is a breakdown of some CPC rates on specific verticals we heard about:
- Consumer: Upwards of $0.30
- Financial: $0.70 to $1.10
- Affiliate ads: $0.15
TARGETING AND VIRAL FEATURES ATTRACT ADVERTISERS
Why is Facebook attracting so many advertisers?
The company’s targeting capabilities are impressive. Advertisers can target by any number of criteria, from geography to marital status to extracurricular interests. For example, an advertiser we spoke with a couple months ago ran a campaign that targeted “”Americans that are married or engaged and are avid fly fishers.” Few platforms can target so precisely.
Viral elements can expand a campaign well past the ad units bought. Many advertisers who spend on Facebook create fan pages that the ads push users to. When people sign up for these pages, their friends are notified, their profiles are updated, they can refer friends, and there is even a presence beyond Facebook via Facebook Connect, in which people sign into and update their accounts on outside platforms from niche websites to large portals.
VIRTUAL GOODS AND SEARCH
Beyond advertising, Microsoft serves search ads through the Facebook platform and also recently struck a deal to incorporate Facebook feeds into Bing search results.
In addition, Facebook sells virtual goods through its gifts store.
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