Photo: Jim Edwards / BI
Facebook’s ad business gets beaten up a lot in the media:
- I highlighted its loss of e-commerce traffic share to Pinterest just this morning.
- Two days ago, Ad Age quoted an ad exec saying, “Our agency has tried to optimise by working directly with Facebook but found they were unhelpful.” Its survey indicated a third of advertisers aren’t convinced of its use as a marketing tool.
- Facebook’s own bankers are expecting a softer Q2 2012 than other analysts.
- And everyone says they ignore the ads on Facebook, of course. It’s actually trendy to dislike Facebook right now. (Your mum is on it—why would you want to spend time there?)
So why did I just hold my breath and drop $936.90 on 30 shares of FB (at just over $31/share)?*
Because I believe that Facebook has a long, long way to go and hasn’t yet gotten beyond first gear in terms of its revenue generation.
It’s all about the data
Most people in the advertising business don’t realise how powerful Facebook’s marketing potential could be, because Facebook ad campaigns don’t generate a great deal of useful data. Or rather, they don’t generate good data compared to Facebook apps made by developers who ask users to give up their data in order to use the app. Those things generate pretty much whatever data you want, and you’re limited only by your imagination.
(This is why game developers are so successful on Facebook—they’re giving away their apps in return for data, and then paying for ad campaigns based on data from both the apps and their previous ads.)
You can get a glimpse of how Facebook thinks about this untapped marketing data from Facebook global head of brand design Paul Adams’ recent essay on information. He said:
“Between sharing the details of our lives, and our knowledge and opinions on a range of topics, the volume of information we’re collectively creating, publishing and recording is incomprehensible. And it’s only increasing.”
Heedless of advertisers’ ignorance—and there’s a huge portion of the client market that has yet to dip a toe into Facebook’s pool—Facebook continues to roll out new ad products: off-site sharing ads, a new real-time bidding ad exchange, mobile-only sponsored stories, and paid post “highlight” promotions.
I’m betting those new products will increase, not decrease, Facebook’s ad revenue. (It was $872 million in Q1, the majority of its $1 billion in total revenues). And I think that increase will be persistent over the next few years as ad money continues to move out of old media into digital and social media.
$872 million = experimental money
Advertisers are still waking up to Facebook’s potential. An audience of 900 million is hard to ignore, after all, even if its ad products are lousy. Zappos social media guru Nate Lurman recently said:
“Getting users to authorise data share beyond the basic profile information opens you up to the ability to bridge the gap between Facebook data and outside initiatives, but I have yet to see anyone tap into this data in an impactful customer-facing way.”
David Jones, CEO of Havas Worldwide, told Campaign:
“Clearly there’s a massive opportunity in the advertising space, it just has to be done in the right way.”
So $872 million in ads is still just the experimental money. Wait until they figure it out properly.
Social media is a rising tide and Facebook has the biggest boat in the harbor. Even if it doesn’t improve its ad products, it will still benefit from a fundamental secular shift in ad dollars from traditional into digital, from display into social, and from desktop into mobile.
That’s my bet.
*I’m holding FB for a long period and fully expect the stock to go up and down in the short-term.
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