Yesterday at Web 2.0 Summit, Mark Zuckerberg sat on stage and told John Battelle that the future of Facebook lies in advertising, when responding to the question of how Facebook is going to make money from Connect. In other words, Facebook has a future in advertising outside of their “walled garden” and will eventually place ads on other pages.
This isn’t really news but it’s the first time that Zuckerberg has publicly stated their intention to move beyond the site for advertising purposes. Last October I wrote that Facebook had tested a cookie-based system for generating external advertisements. The quickest path to integrating Facebook Ads beyond the Facebook website is through Connect which makes a user’s data accessible on other websites.
Facebook Wants To Be the Standard
One thing that Mark Zuckerberg emphasized on stage yesterday was that Facebook still has a shot at becoming the standard. At the UX Summit in October, Facebook was on hand to tell the open source group about their experience with building Connect. One of the key takeaways for John McCrea was that open source products need to look good.
Facebook Connect is far along in the process of being able to roll out the service entirely and at this point it is a race against those trying to develop the “open stack”. When I reference the “open stack” I am referring to the one which John McCrea and many other portable identity evangelists describe (and is pictured below thanks to John’s flickr album). The “open stack” includes Open ID, XRDS, OAuth, a PortableContacts layer, and OpenSocial.
For those that are less technical, it’s not really important to know how these technologies interact. It is just important to know that this is what Facebook Connect is competing with to become the primary identity standard on the web.
Where’s Facebook’s Value?
As Mark Zuckerberg said on stage, Facebook is an advertising business. I would argue that Facebook is furthest along in developing a simple platform for creating ads that target users based on a variety of demographic factors including gender, age, location, and interests. While MySpace has launched their own self-serve advertising platform, the targeting capabilities are not as advanced as Facebook’s and ads are currently limited to the United States.
In the future, visitors to websites won’t be just a number in our analytics services. Instead, we will have access to incredible identity information and Facebook is positioning themselves as the primary identity provider. They are focused on developing the most advanced targeting system to leverage the data made available. This is going to be one of their core competencies and this could eventually become one of the largest (if not the largest) advertising solutions on the web.
Who wants to compete with Facebook in this space? Well aside from MySpace who is already working on rolling out an external facing service, Google.
If Facebook Loses As A Standard
There is no doubt that Google is actively working on developing the algorithm that optimizes advertisements based on granular demographic data. As this information becomes increasingly ubiquitous through Facebook Connect or the “Open Stack”, companies will compete to provide the best targeted advertisements.
While Facebook is properly positioned to benefit from this, the success of Facebook Connect is a relatively critical component of the company’s future success. If Facebook Connect succeeds, the primary advertising platform that will be able to leverage Facebook’s data is of course Facebook. So what if Connect doesn’t win as a standard?
Well, you can guarantee that Google, MySpace, and others are going to rush in to seize the unfulfilled monetization opportunity. While Facebook could succeed in a world of open standards, it’s a much friendlier environment to play in when you’ve defined the standard. Facebook is betting big on the success of Connect and if it fails to become the standard, I would argue that Facebook is going to have a lot more competition when it comes to targeted advertisements.
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I don't understand, how would Facebook run ads through Connect?… Maybe in the popup login box, but after that I don't see how this is even possible.
Comment by Jason — November 7, 2008 @ 10:02 am
The ads aren't physically run through the Connect interface … in hindsight though, they can run ads with their cookies regardless of Connect … either way I enjoyed writing the post
Comment by Nick O'Neill — November 7, 2008 @ 10:19 am
Huh – How would Facebook display an ad on my site using Connect? I still don't see how that is possible.
Comment by Jason — November 7, 2008 @ 10:21 am
The same way Google displays ads on websites … via a javascript embed
Comment by Nick O'Neill — November 7, 2008 @ 10:22 am
That requires the developer's approval/work, and the developer gets a (very low) comission…
So are you saying Facebook is creating an Ad service just like Google? If so, that is a piss poor business model for FB.
Comment by Jason — November 7, 2008 @ 10:50 am
I'm not sure I could have explained it more clearly
Comment by Nick O'Neill — November 7, 2008 @ 10:53 am
Using the word "adsense" would help.
Comment by Jason — November 7, 2008 @ 11:03 am
Facebook Connect could work but I do think Facebook has other options besides advertising. Advertising solves a big business problem which is the need for exposure and that is why it is so lucrative. However there is arguably at least one even better problem to solve for businesses – help them sell their wares. As a business, selling and making money is just as important if not more so than merely gaining exposure in the hope that sales will result from that in the near future.
In a recent blog post, I described a feature or application that Facebook could implement to help solve this problem and potentially make loads of money in the process. If Facebook won't do it then I'm sure some 3rd party developer would be happy to. The idea in a nutshell is (taken from my blog post):
"…to enable users of the application to throw Profile Parties that they invite friends to. Friends who accept the invitation will on the date/time of the ‘party’ all converge on the party thrower’s profile to engage in various fun activities simultaneously for say half an hour.
The fun activities will be chosen by the party thrower, who would also pick music to play at the party that he/she thinks their friends would like. Activities would include party games of course (ID that tune for example), buying virtual drinks, making introductions, chatting etc.
(to make money) the app could enable profile party throwers to select real-world and virtual items that their friends might be interested in buying and have the party thrower offer them to friends at discounted rates during or immediately following the party. This way, the party thrower can earn an affiliate commission as can the app developer. Facebook would then become a place for real-life businesses to sell their wares directly…"
There is more in the post if you are interested. I am certainly keen to hear what Nick and others think of this as an idea for Facebook.
Comment by IdeaTagger — November 7, 2008 @ 11:41 am
Facebook will never be the 'standard' – AOL thought it was going to be some 10 years ago.
Social Networkers pay little attention to 'forced ads' – there is little to no incentive to a user to pay attention to them. Given the state of the global economy for projected next 5 years sites like Facebook are doomed unless they wake-up and listen to what 'real-people' want, not just tekkies. You get back what you put out, so far Facebook has little to offer in that reagrd.
Comment by Dick Entrada — November 24, 2008 @ 4:40 pm