Days after Facebook first announced its sponsored stories product, we’re hearing that the company has been actively pitching third-party ad platforms on extending the product through the company’s increasingly popular Ads API. That means we could soon see sponsored stories show up as a self-serve product for all advertisers on the site.
While there has been mixed coverage of sponsored stories, with some even suggesting that this is the return of Beacon, it appears as though the company has very big plans (and hopes) for the product. One of the major features not yet articulated by Facebook is the integration of Open Graph objects into this new product. The idea is that when you like a pair of Nike shoes on Amazon, both Nike and Amazon should be able to pay for that action to be turned into an advertisement. While big brands are part of the initial test, Facebook is hoping for advertisers of all sizes to be able to take advantage of this new ad product.
Facebook’s Retargeting Play
While Facebook hasn’t explicitly stated this, the new sponsored stories are comparable to the retargeting ads that have exploded in popularity in recent months. Don’t understand? Here’s an example of retargeting as described by The New York Times:
The shoes that Julie Matlin recently saw on Zappos.com were kind of cute, or so she thought. But Ms. Matlin wasn’t ready to buy and left the site.
Then the shoes started to follow her everywhere she went online. An ad for those very shoes showed up on the blog TechCrunch. It popped up again on several other blogs and on Twitpic. It was as if Zappos had unleashed a persistent salesman who wouldn’t take no for an answer.
Advertisers love retargeting, as performance is incredibly high. While just about every ad platform is entering the retargeting business, Facebook is just now beginning to enter. Advertisers will be able to target two parties: the user who explicitly liked a specific product and their friends through the new sponsored stories product.
Facebook Goes After Game Developers
While not explicitly told to third-party Facebook advertising providers, one of the most obvious markets for sponsored stories is game developers, one of Facebook’s largest sources of advertising revenue. Recently, Facebook had cut down on many of the communication channels used by developers to acquire new users, shifting instead to the optimization of re-engagement channels, such as homepage bookmarks. The end result is that game developers get more bang for their buck when acquiring new users through Facebook ads.
The longer that they can keep a user, the more likely they will be able to convert that individual into a paying user who purchases virtual goods. Ironically, not only are developers paying for users through Facebook’s ads, but they’re also paying a 30 percent cut on all transactions that go through their system: a tax which will become mandatory beginning in July. It’s a difficult course for Facebook to navigate as they try to avoid leaving developers with a bad taste in their mouths.
On one hand, the new advertisements could see an increase in performance as placing a user’s friends faces in ads tends to accomplish such a goal. However the company is simultaneously optimizing platform communication channels in a way that maximizes revenue Facebook. Completely harming the developers is something they clearly don’t want to do as it will damage a much more significant long-term business, something that Facebook is betting will serve as a significant revenue source.
As such, Facebook has been promising new ways for developers to increase their revenue: frictionless payments and “buy with friends” (something many are calling Facebook’s foray into Groupon territory). The other carrot that Facebook can provide to developers is new communication channels, something Facebook has previously teased but has yet to deliver in any significant way.
The Small Business Play
The most substantial advertising business for Facebook is not developers, though. Instead it’s the company’s self-serve business that is used by countless small businesses. While Facebook’s pages have served as the primary platform for small businesses to promote themselves, the Open Graph will become an increasing marketing channel. By converting all like buttons into objects within Facebook’s advertising system, the company may have developed a more powerful system than many other advertisers: an opt-in retargeting ad platform.
It’s a concept that Facebook has been playing with since the company first announced the Open Graph at a developer garage back in October of 2009. It’s an awkward term which (intentionally or not) confuses many about Facebook’s intentions. Those intentions have now become clear: a global web of “like” buttons that power Facebook’s advertising network. The idea is that in the future you will be able to like anything on your computer, in a video game, walking through the mall, or more, and advertisements will now be able to more effectively target you through your ever expanding personal advertising profile.
It’s an ambitious vision and one that Facebook has been trying to perfect for years, starting with the previously failed Beacon. At the time Facebook stumbled through the creation of an opt-out advertising platform. This time Facebook hopes it has navigated things properly. So far we’ve seen very little backlash over the product, an early signal that Chief Executive Officer Mark Zuckerberg may have successfully pulled off a vision that he previously failed at. With persistence comes great success, and most likely eventual criticism.
While the future of Facebook’s “Sponsored Stories” product is unknown, the company’s ambitions have never been more clear. Now we’ll have to wait and see what advertisers and consumers say about the new advertising product. What do you think of the company’s plans to turn your likes into a comprehensive personal advertising profile?
I find the prospect of FB turning all my likes into one comprehensive personal advertising profile frightening!
I don't want to be "targetted" by FB, Sarah Palin or anyone. I know they need to make money, but I don't like the idea of my face being used in an ad to my friends or their faces popping up in ads directed at me. I think I'll stop "liking" things on FB.
Comment by Bruce — January 27, 2011 @ 12:16 pm
This is awesome. If this goes well with users it will be a HUGE win for businesses. Small and BIG.
Richard Bonilla http://www.feedcastmedia.com
Comment by @richardbonilla — January 27, 2011 @ 12:52 pm
It seems every week facebook looks for more ways to expliot and target it's users. I understand it is their site, so you abide by their rules. However, I have choosen to opt out by canceling my facebook account.
Comment by Jim — January 27, 2011 @ 1:21 pm
I think that it goes against the reason publishers have put the like button on their pages in the first place: to get placement in user's News Feeds. Someone likes their page, and this action is then shared with their friends via News Feed.
If advertisers – or publishers – have to pay for those actions to be included in the News Feed, then what is the incentive for publishers to include the "like" button if they have no budget to then purchase viral retargeting via Sponsored Stories?
It diminishes the impact of the ubiquity of the "like" button for many of us who are publishers and not Big Brands.
However, it would allow us theoretically to sell retargeting to Big Brands based on what users have liked on our content. It will also allow us to more easily target folks who might be good fits for our content
Zuckerberg has a long-term vision, and at this point there is no getting in the way. For Facebook at least, the web will be "open" and they will reap a windfall unlike any we have seen before.
Comment by Nick Vivion — January 27, 2011 @ 7:48 pm
This dual-targeting with "Sponsored Stories" (i.e. "the user who explicitly liked a specific product and their friends through the new "Sponsored Stories" product") will be a major turn-off. Case in point, what determines the limit of these so-called "Sponsored Stories" from appearing in the news feed? Will there be a cap? If not, the innovation of the news feed will be corrupted and become a giant advertisement platform. No thanks!
Nobody likes persistent salesmen. Such tactics demonstrate concern by the salesman to make a profit, not the welfare of the consumer. Overly-eager sales personnel will drive a potential customer away from the product. I currently use Ad Block Plus to eliminate all ads on websites. Hopefully some innovative individual will be able to develop a patch to filter out these marketing disruptions.
I use the "like" feature on a very limited basis. This "Sponsored Stories" will cause me to unlike pages/products — especially mainstream things with heavy advertising budgets — since it will disrupt the spontaneity of the news feed. If worse comes to worse, I will ultimately de-friend people with the insistence that I do not appreciate second-hand spam.
Comment by Frank — January 27, 2011 @ 8:17 pm
While I may not enjoy every move I make on Facebook to become sponsored, I can't see why Facebook wouldn't open its corporate model to allowing more advertising $$ in! So sadly it makes sense.
This is just following the trend of social networking platforms needing to make money while providing the social public a free service. Jim, Frank and Bruce… I hear ya.
Comment by @kristendwesley — January 28, 2011 @ 9:30 am
[...] finding from a Webtrends cost justifies Facebook’s recently announced sponsored story ads, which essentially refrain fan activity in newsfeeds, while also explaining why Google and [...]
Pingback by STUDY: Facebook Ads With Friend Activity Work Better — January 31, 2011 @ 6:21 pm
[...] most obvious change is the ability of self-server advertisers to publish the new sponsored stories ad format that we’ve previously covered. There are two types of sponsored stories for [...]
Pingback by Facebook Rolls Out Major Upgrades To Their Ad System — February 8, 2011 @ 10:48 pm
Them trying to make more money doesn't bother me. If they're hastening the coming of the New World Order or something through some kind of ubiquitous surveillance something or other, that's what worries me. Last I checked there's no equivalent of "Do No Evil" in Facebook's corporate charter.
Comment by @tinyvox — February 9, 2011 @ 3:53 am
Hello, I have 17 years old and my name is Adrien FERRAUD. I lived in Nimes in the South of France in the department of the Gard ( 30 ).
I am in a high school of more than 700 pupils where the young people and the social networks make that one and stops communicating via Facebook, Twitter, MySpace, Skyrock etc….
I send you a message by hoping that if possible, this last one is passed on to administrator(director) Facebook France:
In April in my high school takes place a gigantic carnival where thousands of persons will be informed. People of the outside can come in our high school to see studios(workshops) proposed for this event!
Of more seen than it is a carnival, the pupils can disguise…
It is for it that I look for to contact administrators(directors) of Facebook France, I would wish if possible to be sponsored by the site to have a disguise(fancy dress) mentioning the Facebook FR company! I would be quite yes for their propositions!
Looking forward to a favorable answer, Me
Comment by ferraud — March 6, 2011 @ 9:46 am
[...] to a growing menu of promotional options offered on Facebook. Some of the recent additions include sponsored stories and the forthcoming promotion of Deals in news feeds, among [...]
Pingback by Facebook Tests Real-Time Ad Targeting — March 23, 2011 @ 6:14 pm
[...] to make you pay attention to certain brands, events, or places. However, unlike Facebook’s Sponsored Stories, these ads would not be reiterations of information your friends have publicly expressed interest [...]
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