Despite their constant denials, all signs indicate that Facebook is on the verge of launching their own display ad network to compete with Google. Back in May, they quietly changed their terms of service to permit the showing targeted ads to users, even when they’re away from the Facebook.com social network. More recently, Facebook has been showing display ads on their partner Zynga.com’s website, leading many to speculate that the social networking giant is poised to launch a full out campaign to grab market share from Google’s Adsense product.
While most of the recent buzz around Facebook’s growth has been around the news that they’re planning to launch their own search engine, there are plenty of signs that indicate that a Facebook’s entrance into the online ad market may be their next big play. The display ad network is a massive multi-billion dollar market. Google’s Adsense product earned nearly 3 billion dollars in the 4th quarter of 2011 alone, just a little over half a billion dollar short of Facebook’s entire revenue numbers for all of 2011. That’s a lot of money, money Facebook desperately needs if it’s going to drastically grow its revenues and show that it deserved every bit of the hype that led to its infamously high priced IPO.
Nearly 10 years ago, Google Adsense revolutioned display ads online, transforming what was once an unfeasible way for publishers to significantly monetize their content into a revenue-generating machine. The “secret sauce” in Adsense’s success was that it used smart targeting – combining analysis of each webpage with its user tracking info to show each visitor ads that were relevant to that particular user at that particular moment. This allowed advertisers to spend more money on ads, publishers to earn more revenue, and lots and lots of cash for Google.
Because of this, the display ad industry has been dominated by Google’s Adsense platform for the last 10 years. Only now, does there appear to be a competitor with the data, technology, user-base and resources to finally launch an attack on Google’s display ad dominance. But intentions aside, is Facebook actually capable of launching a display ad network that can take a significant chunk out of Google’s market dominance?
Facebook Has The Publishers & Advertisers
One of the biggest problems that Adsense competitors have struggled with is attaining a critical mass that allowed them to pay publishers at the same rate as Google Adsense. A smart ad platform like Adsense needs lots of advertisers and lots of publishers to be able to show relevant ads across a wide array of niches. Without lots of advertisers competing for ad space, the price per clicks remains low, meaning publishers get paid less. When publishers get paid less, they go to other ad networks – namely Adsense. When advertisers can’t find relevant publishers, they move elsewhere as well. This leads to a massive chicken and egg problem that has virtually ensured market dominance for Google Adsense.
If Facebook were to enter the online ad space – and all signs point to this venture being imminent – they would be able to circumvent this chicken and egg problem that has foiled all competitors thus far. In fact, many experts believe that Facebook has been deliberately positioning themselves for this venture. With millions of webmasters and bloggers already using Facebook “like” buttons, Facebook widgets, and spending hours of Facebook.com everyday, Facebook is in a position to instantly create a huge network of web properties displaying their ads.
Likewise, their existing pay per click ad platform – despite being limited to Facebook.com at the moment – gives them access to a large, hungry audience of hundreds of thousands of advertisers anxious for the opportunity to spend their marketing dollars on a Facebook ad network that could reach users away from Facebook.com
Can Facebook Successfully Bite Into Google’s Marketshare?
Despite all of Google’s resources, they were relatively unsuccessful when they ventured into Facebook’s area of expertise with their Google+ product. This might cause some to wonder, will Facebook fail when they try to venture into a Google dominated market?
The difference between Google’s lack of success in the social networking space and Facebook’s potential in the online ad arena is that – while Google was never about social networking – Facebook is already running a successful ad network that serves billions of impressions on a daily basis. Furthermore, if it means higher revenues, advertisers and publishers are always happy to jump on board another ad platform.
While it remains to be seen whether Facebook will achieve the success of Google Adsense when it comes to online ads, it seems likely that a Facebook ad network would – at the very minimum – be more than capable of carving out a sizable chunk of Google’s display ad dominance.