Are Facebook Ad Networks Worth the Trouble?

My friend (and former college drawmate) Sundeep Ahuja posted the full version of his post about Facebook ad networks here (a redacted version was posted on Inside Facebook yesterday). I think it’s a good overview of what’s happening in the Facebook ad universe today and I have a few thoughts in response. Let me say that I a) have not developed a Facebook application of my own and b) have not spent a lot of time experimenting with all of the products he mentions in the post. Consider these thoughts as off the cuff. Two main points I’d like to make:

If you’re an existing widget provider and developing an ad network or ad capability is part of your overall business plan, experimenting with Facebook makes sense to me. Facebook is a pretty fertile ground for innovation and Facebook is a good way to figure out whether ad serving in widgets is a viable way to proceed. If your name is RockYou or Slide, this makes a lot of sense to me as a hedge at a minimum and as a real business opportunity at best. Those two companies already have enough non-Facebook widget traffic; figuring out how to better monetize that traffic using Facebook as a testbed makes a lot of sense to me. Any key learnings could likely be filtered back into the non-Facebook product as well.Ultimately I think the widget business is going to be about delivering ad impressions anyway.

Until it’s clear that Facebook is not interested in playing in this game, I’m not sure that I would pour a lot of resources into building a monetization engine only for Facebook. Perhaps I am being naive, but I only see two real revenue opportunities for Facebook — ads and virtual items. For the near term, I expect ads to dwarf the virtual items piece. I’m not sure whether devoting resources to build an ad product for Facebook is a wise investment.

I don’t want to abandon this point prematurely. Building a good advertising product requires three key components: advertisers, publishers, and reasonable expectations about conversion. From everything I’ve seen, the conversion rates on most Facebook-related advertising is fairly low. To actually make money, app publishers will need to build applications that generate a lot of traffic, especially if we’re talking about display advertising with fairly low CPMs. I won’t even touch on the question of advertiser acquisition – getting quality advertisers on board is very expensive. If building a really good ad network were cheap and easy, everyone and anyone could do it.

Like any emerging market, there are more questions than answers. But until I see more data, I’m just not convinced that Facebook-specific ad networks make a lot of sense at this point in time. Feel free to agree or disagree in the comments.

  • Thanks for the shout, Charles. You post very relevant questions, many of which we tried to answer at AppDevCon yesterday in SF (by we, I mean a panel of startups targeting this opportunity). All in, my personal belief is that advertising itself is going to shift (again). What Google did for advertisers by using keywords as a measure of intent was a (huge) step in establishing communication between merchants and consumers; Facebook (and other SNs) will allow for a richer conversation, ultimately resulting in a win-win-win-win between merchants, consumers, SNs (the gatekeepers), and companies like appfuel (where I’m a co-founder) which will make it all happen.

  • Sundeep Ahuja

    Thanks for the shout, Charles. You post very relevant questions, many of which we tried to answer at AppDevCon yesterday in SF (by we, I mean a panel of startups targeting this opportunity). All in, my personal belief is that advertising itself is going to shift (again). What Google did for advertisers by using keywords as a measure of intent was a (huge) step in establishing communication between merchants and consumers; Facebook (and other SNs) will allow for a richer conversation, ultimately resulting in a win-win-win-win between merchants, consumers, SNs (the gatekeepers), and companies like appfuel (where I’m a co-founder) which will make it all happen.

  • charles

    Thanks for the comment, man. I think this is a nut that still has to be cracked. The other thing I wanted to mention was that I’ve seen many FB apps where the goal seems to be user acquisition for a hybrid FB/non-FB app, not direct monetization. To the extent this remains the case, I’m curious to see how this all plays out.