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Reader question: Does Facebook + performance ad network = awesome?

Q: Do you think it makes sense for Facebook to build out a self serve performance based ad network?
Posted by joy

A: There are a couple interesting angles to consider here:

Facebook has a very interesting local play, due to their understanding of geographic and friendship networks. Very few companies in the world have as much information about your location and interests. However, the problem with local is mainly that the CPL to actually acquire a plumber in Tacoma, WA is often more than the revenue you’d ever get from it.

From the perspective of inside the Facebook site, I pretty much think it’ll be a grind-it-out brand ad sales play the same way Yahoo is. The more I think about Facebook, the more I think they are the new Yahoo – primarily strong in messaging and communication, they are more of a social utility than they are anything else. For them to succeed in generating significant revenues driving traffic to other sites, they have to move from a more people-oriented model to one where links to external sites play a bigger role in the interaction. That’ll be hard to do since it mucks with Facebook’s core mechanic.

And yet another angle is for Facebook to start their own performance ad network that places ads OFF of Facebook, as the reader suggests. This is absolutely feasible, but my guess is that any use of the information from on the site would cause a privacy nightmare for the company. I mean, it’s one thing to have Beacon which tracks data from OFF the site, but once you start trying to use data from on the site and giving it to any ol’ publisher to use, then you are in deep trouble. Obviously it’s likely that the privacy line is moving and evolving over time, but the public’s not ready for it now. (Even as companies like Fair Isaac, Axciom, etc are all mining even more sensitive information)

Even if the privacy implications were mitigated, how well would the Facebook ad network do? I’d think that with how smart their folks are, they could probably get somewhere quickly. However, remember that much of ads is not a technology problem – a lot of it as a sales execution problem – and that may not be where they want to spend their effort, even if they could be successful in the short run. After all, when you have a $15B valuation, picking up $100MM in revenue here or there may not be interesting if it’s hard to scale it up to $1B in revenue later on. 

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