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.