Danny Sullivan has posted a great article for Advertising Age about search ads being the revolutionary advertising tool, not social ads. Danny has been a thought leader in the search engine industry for more then a decade so he has a slight bias but honestly, he makes a hell of a point:

Consider what Facebook founder Mark Zuckerberg told us about the transformation: “We are announcing a new advertising system, not about broadcasting messages, about getting into the conversations between people.”

“Getting into” conversations. Yes, how we enjoy that. You’re in a coffee shop talking with a friend, and suddenly along comes the spokesperson for an artificial sweetener, just wanting to have a chat.

Go. Away.

Facebook holds the most accurate depiction of the social graph (at least in the United States). Facebook also has the ability to target ads based on profile data, through trusted connections and through conversations. While this may be the holy grail of market research it may not necessarily be the holy grail of advertising channels. As I previously suggested, Facebook has an unproven advertising model. For Facebook’s sake I hope that they have data backing up this model, otherwise they may have trouble validating their $15 billion valuation.

Danny definitely has a great point: “Search offers a key way for new products to emerge and be spread around. People turn to search for solutions.” It’s really as simple as that. I have to agree with Danny but if there was some way to combine the best of both worlds, you would truly have a phenomenal advertising opportunity. Imagine if Google enabled advertisers to not just market by keyword but also to select demographic information for each visitor. This would be revolutionary.

I can guarantee you that Google is working on this but they are going to need access to the type of data that Facebook has. We’ll see how this pans out but together, Facebook and Google would be a truly unstoppable force. Too bad Google doesn’t have an extra $15 billion to spend. In the meantime, search advertising reigns supreme and Facebook will be left to prove the viability of Social Ads. Facebook may come out on top but we still live in the age of the search engine.

GameFly is a video game rental service that allows users to choose their games online and have their choices mailed to their house. Basically, it’s Netflix for gamers. Evidently, GF has begun tying their users’ activities on their site to Facebook via Beacon, instantly broadcasting rental histories onto News Feed.

This is especially significant when coupled with the fact that a search for “GameFly” within the Facebook application section yields no results. This is a clear example of the power of Beacon. GameFly doesn’t even need to bother creating a Facebook application because their users are passively perpetuating the brand through Beacon.

Additionally, because the GameFly reference comes straight from the user and not the company, the marketing tactic is legitimized due to the fact that the brand reference comes from a trusted source and not a corporate entity. There is a significantly higher CTR when a new user clicks through from a friend’s profile or News Feed versus clicking through a banner ad based upon this trust imperative. Beacon allows companies to market without “marketing.” This is viral marketing at its best.

As Nick pointed out earlier this month, many users won’t know about the ability to turn off the updates, which will, in essence, turn many Facebook users into brand ambassadors whether they know it or not. Is this the future of Facebook advertising?

The following video explains an observation I’ve made over that past week that could prove to be the exact methodology Microsoft is using to behaviorally target ads to users across the net based on Facebook Pages usage. We’d like confirmation on this if possible, so please watch the vid, and observe your own Facebook Page usage, and watch for any corresponding ads on non-facebook websites.

Follow Peter’s Corbett3000twitter stream.

Fred Wilson has been updating the world about his venture in Facebook advertising over the past week. Today, Fred posted and updated screenshot of his ad campaign’s performance and it doesn’t appear to be too stellar. For one of his campaigns, out of 10,080 impressions there were only 8 clicks. The average cost-per-click for Fred was $0.08 and the average CPM was $0.06. This is a less than stellar performance. This is nothing new though.

Facebook has continuously produced less than stellar results for advertisers. With historically high CPMs and historically low click-thrus, Facebook is facing a challenge. Their new ad system has significantly reduced the CPM for those that opt for the cost-per-click (CPC) model. The only problem is that there are no clicks. While the targeting is phenomenal, Facebook users are more engaged by the content within the site rather than the advertisements. Perhaps Facebook is a little too engaging.

This is going to be a significant problem for Facebook over the next few months. With a valuation of $15 billion thanks to Microsoft’s investment, Facebook will have to start producing numbers that validates its astronomical valuation. The only solution I see for Facebook is to extend their advertising platform outside of Facebook as I previously suggested they would soon start to do. Aside from that, I’m not sure what else Facebook can do to improve the performance of their ads.

Have you had any good experiences with Facebook’s new ad system?

Yesterday, Facebook officially announced their new ad system and it’s significant. One thing that went missing is the supposed external ads that many of us were waiting for. While we can target within the site, there is currently no way to target outside users. So much for a direct attack on Google. That’s not to say that it won’t ever occur but it doesn’t look like it’s happening anytime soon. While we’ll have to wait on the Google ad killer, what is the significance of the latest announcement by Facebook for users, developers and brands?

Users
Users are going to continue to use Facebook the way they always did. The only additional feature is going to be the ability to add brands as friends. While I am all about saving the planet, I’m not quite sure that a Toyota Prius or a Saturn are going to end up in my friend list. Honestly, this seems a little bit ridiculous but apparently this model has been successful in targeting the younger crowd. I would be interested to see what the demographic breakdown of users in sponsored groups has been over the past year. Don’t count on that information showing up on this blog anytime soon!

If you were ever a MySpace user, you will quickly realize that this is something that MySpace already offered. MySpace is famous for their company pages users can add as friends to help express their affiliations. If you studied marketing for even one semester, chances are that you will know that brand personification is the apex of marketing strategy. Adding a brand as a friend effectively translates this maxim into reality on Facebook. Are you going to be adding brands as friends now?

Developers
Developers actually get some new options here. According to Facebook, brands can now opt to add applications to their brand “Pages.” Facebook hasn’t publicly addressed whether advertising partners can select from a directory of Facebook developed applications (unavailable to the public) or if they have to select from the publicly available application directory. I have a feeling that this is where Facebook will compete to provide custom applications to brands.

Conversely, if your application does make it to one of these sponsored pages, your application will receive a higher priority within news feeds of friends of the user who is interacting with your application (did I make that confusing enough for you?). Additionally, developers will now be able to pay for more effective ads. Rather than simply paying for flyers (which a number of application owners are already doing), ads will also be accompanied by a small list that informs the user of which of their friends have installed the application.

Brands
So what do brands get out of this? A lot. Up until now, Facebook brands were able to purchase sponsored groups that members became affiliated with. Instead of that, brands will now be able to purchase custom profiles which consist of ultimately the same features that traditional user profiles have without all of the personal information. Instead of information a brand can display:

• Company website
• Company location
• Hours of operation
• Band Members
• Record Label
• Season Schedule
• and more

When I first read about this, I didn’t realize how significant this is but imagine if your favorite bar down the street creates a page. You can view their page that has all the regulars and there is conversation that takes place on that page. This is the concept of hyper-targeting. Local businesses will be able to interact directly with local customers via the social graph. I can now see college students running aroung to businesses trying to make a buck off of this new platform by offering consulting to local businesses.

So is this significant? Yes. It is going to take time though for businesses and consumers to realize the actual impact of this system. When you are interacting with the brands that you interact daily with (don’t think Nike, think the local restaurant down the street) these ads could easily become more significant. Look for some exciting things to come. It will be interesting to see what the true impact of this new system is.

Just when you thought there wouldn’t be more advertising options for application developers, AdChap, a cost-per-click ad network decides to launch. So why use them over one of their competitors? I have no idea! They have a pretty well designed user interface but aside from that, I don’t believe that they have the critical mass necessary to make this a sustainable business.

I am somewhat biased though since I think that many of the current advertising plays on Facebook are extremely short ones. Larger advertising networks (including Facebook) are preparing to enter the market and will have the inventory that is able to provide higher CPC and CPM then the existing Facebook advertising platforms. AdChap is currently charging $0.13 for each click and I’m sure that publishers are getting a fraction of that.

An additional problem with these new ad systems in that while they provide you with clicks, there is no insurance that some of those clicks are repeat users. This is the wild west of advertising and there is no accountability. Additionally, AdChap doesn’t appear to be serving the most compelling ads. An example of one of their ads is below. Is there anybody that thinks that the CPC advertising model on Facebook is a good model for new entrants to the market? If you still haven’t found a good advertising network on Facebook, go check out the AdChap application.

On the heels of Facebook’s Social Ads announcement tomorrow, MySpace will be announcing announcing a new “hyper-targeted” ad network that, as Vauhini Vara reports, is “a self-service way for users such as bands, politicians and small businesses to buy advertising on the site.” In contrast to Facebook’s new ad network which is a mixture of text and image ads, the new MySpace ad network will be for dispaly ads.

Similar to Facebook’s upcoming ad platform, “MySpace uses proprietary technology to build a detailed profile of each user and their friends, including age, gender, location and interests,” Duncan Riley adds. MySpace’s announcement may be a strategic one to avoid the image that they are following behind Facebook, the soon-to-be leader in the social networking space.

Rather than advertising by specific keywords, advertisers can select from more than 1,000 subcategories of users that they can target. According to Techcrunch, “there are over 300 subcategories for movie lovers alone.” Things in the social networking space are beginning to heat up as MySpace and Facebook both announce their entry into the advertising space. As I suggested this morning, this may all be followed up by an announcement by Google who is also working on their own social advertising service (although details are significantly limited and this is pure speculation).

While new social advertising services will probably become widespread, these new advertising models are still unproven. We are at the early stages of a revolution in targeted advertising. The launch of social advertising platforms are only a first step.

Last week, Google announced the new OpenSocial standard. The new standard, which immediately was dubbed a Facebook killer by many, soon become the subject of many questions after one application was hacked and others noticed the less straight-forward model of Atom feed model that Google decided to go with. It became apparent that Google’s announcement last week was simply that: an announcement.

Over the next few months, one platform after the other will open up and many of them will be comparable to Facebook aside from the requests and notifications that developers have learned to love but users have come to hate. But as I suggested the other day, Facebook’s primary value is not their platform but instead the immense amount of data that they have about the users and the user interactions. All of this information is going to be monetized through Facebook’s new Social Ads advertising system that they are announcing tomorrow.

It has been well known for some time now that Facebook would begin serving more relevant ads to users. Where has Google been all this time though? Do they not want to launch a similar service? They do and they are about to. Google has been partnered with MySpace for over a year now and under their agreement with MySpace, they gained access to all of MySpace’s profile data. So has the Google ad team been twiddling their thumbs over the past year?

No way! Google has been optimizing MySpace profile data in relation to their upcoming social advertising tools that they will integrate into their Adwords system. Months ago, I heard from at least one Google employee that they are actively working on this new service. Then last week I heard a juicy rumor that I haven’t been able to confirm yet but which makes a lot of sense: Google will announce their social advertising platform soon after Facebook does.

Facebook, who recently acquired a New York City office has been focused on building relationships with ad executives on Madison Ave. There is no way that Google is going to simply welcome Facebook to the Big Apple. Instead they are waiting until the timing is prime to announce the upcoming upgrade to their advertising system. Whether or not this comes on the heels of Facebook’s announcement, I am not sure, but chances are it is coming soon.

If Google was willing to announce OpenSocial prior to its completion, I can guarantee that they are willing to do the same for social advertising. Their OpenSocial standard will also provide simple integration into their upcoming social advertising offering. While I may have been harsh on Google last week for releasing an unimpressive standard that may eventually impact the social web significantly, I am by no means underestimating the web advertising behemoth.

Google isn’t going to let a company that is currently bringing in $150 million in revenue quietly sneak up and pull the rug out from under them. Google is going to put up a fight and given that advertising is Google’s crowned jewels, you can rest assure that they will be providing plenty or resources to take on Facebook. Facebook will make the first move on Tuesday but look for Google to strike back soon after.

Last week I was approached by a PR firm representing a large UK brand name with some plans to build a Facebook app to promote their products. As a great fan of Facebook and the platform, I was thrilled that bigger brands were starting to embrace it - and my contact was asking me if I could build the app for them!

So you can imagine we were both lost for words thirty minutes later when we realised I’d managed to talk them out of the whole endeavour.

What went wrong? Well, I didn’t swear them off ’social media’ completely; I’d like to think they’ll go back to the drawing board and come up with something eventually. But early in the conversation it was obvious they thought the project could be treated as just another web site commission. That won’t do: we all know that an app requires more love and attention than posting a flash site at a web address.

No developer would wish upon a ‘low-tech’ company’s IT department the maintenance headaches of running an app on a new-born platform. As Facebook changes the rules to suit the game, you need an app developer on-hand to keep up and change the code. And even without those changes, these things aren’t one-way: a thousand users will be clicking and dragging the app in a thousand different directions. You can’t just check the server logs to be sure it’s still working.

“We can host it!” cry the Facebook development shops. Sure you can, and you’d do a good job. But a good app will evolve to reflect the way that it is being used: responding to user feedback; expanding ideas that strike a cord; simplifying interactions that lead to confusion. Perhaps an exceptional development and hosting service could even promise all that (for a price). But, crucially, the app may not evolve in the direction the big brand envisaged. Worse, the user base may turn out not to be their target market.

Partnering with existing apps is of course a great solution for developers, and one that Nick’s been shouting about recently. It also suits the brand. When the demographics cease to be useful to (say) the soap-powder manufacturer who’s trying to target professional women, the brand just terminates the branding contract - which is fine because Crayola wax crayons are queuing up to market to the 12 year-olds who’ve taken their place.

At recent dev events, developers were either complaining about low returns from the advertising networks or asking the big name companies how to go about finding a brand sponsor. I didn’t see anyone find a promising answer.

There are many companies setting up banner ad networks desperate to drag users kicking and screaming out of Facebook, or landing them elsewhere within the pyramid of apps vying for attention. As the platform stabilises and more app development teams can demonstrate a reliable track record, perhaps brand partnership brokers will provide a more compelling service.

An update to Facebook’s CSS code has confirmed that Facebook’s new ad system is indeed called “SocialAds.” A combination of CSS and a little bit of guessing helps to provide a glimpse of what Social Ads may look like. Social Ads appear to have a very similar look to Facebook flyers. The combination of text and images provide a simple ad somewhat similar to Google ads but with the added option of images. It appears that users will also be able to click thru to other ads that are targeted at the user.

While this is an educated guess at how the ads will look based on the CSS that is provided, it is pretty obvious that these ads are intended to be placed within the sidebar of the site. There is a CSS class called “social_ad_profile” as well which makes me question whether Facebook has decided to embed advertising within user profiles as well. Any ads that are embedded within user profiles will be a significant change for a site that is known for maintaining a clean user interface unencumbered by excess advertising that MySpace has long been known for.

Facebook is supposed to be announcing their new social ads program this Tuesday. According to other sources they may be announcing their new music service in addition to spawning a mullet pandemic, so watch out! It will be interesting to see what news comes out of the highly secretive Facebook event given that all attendees are forced to sign non-disclosure agreements. Previously, non-disclosure agreements didn’t stop people from leaking rumors about Google’s OpenSocial system so I can’t imagine that it would be any different for Facebook’s upcoming event.

Update
One of my readers pointed me to yet another screenshot of future Social Ads integration. Apparently, Social Ads will show up as one of your newsfeed items and you will be able to view all of them via your Social Ads newsfeed page. It is beginning to appear that Social Ads is a combination of all the projects that are currently under development at Facebook including the mullet pandemic. Facebook has been slowly leaving clues leading up to their announcement on Tuesday. (Thanks to David for the heads up).

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