Speculation over whether Facebook will build an ad network has flip-flopped just about every month for the last year. Facebook should build an ad network. Facebook is laying the groundwork to build an ad network. Facebook should acquire an ad network. Facebook makes it official: it is building an ad network. Facebook kills plans to build an ad network. Facebook puts ad network “on pause.”
Today at All Things D’s D11 conference, Facebook COO Sheryl Sandberg poured more cold water on the speculation. Building out an ad network, she said, is a “non-goal.” Facebook can’t execute on an ad network while it is focusing on other areas, she said. Namely, mobile.
Fair enough. Facebook will forever be recovering from its reputation as a mobile laggard, which it earned negative publicity for around the time of its IPO last year. But if an ad network is such a low priority for Facebook, why the intense fascination on it from everyone else? Two reasons:
For one: Facebook needs new revenue streams.
Despite the fact that the company earns $5 billion a year selling ads, Wall Street has not exactly come around to Facebook’s earning potential. A year after its IPO and the company’s market cap remains around half of its grand $100 billion IPO valuation. So Facebook has spent the last year cooking up new ways to impress the world with innovative new products. The thing is, most of them aren’t quick fixes to bring in more money.
The company launched Gifts, it’s attempt at e-commerce. That effort had a rocky start; the company has said Gifts’ contribution to earnings is not significant and isn’t likely to be significant any time soon.
The company launched Home, which had the potential to sell big splashy ads that take over a user’s lockscreen. Unsurprisingly, not many people wanted that. The product appeals to die-hard Facebook fans who use their phones as Facebook machines and not much else. The HTC One “Facebook phone” was considered a retail flop; AT&T lowered the price from $99 to 99 cents. Today Sandberg said it was early and that Facebook is not giving up on Home.
Facebook has also launched Graph Search, a potential answer to Google’s Money-Printing Intent Machine (a technical advertising term). But the company has kept mum on how it might monetize that functionality, despite much speculation on the topic. (The most obvious answer is Sponsored Results ported into Graph Search. Or, if Graph Search ranks results by Likes it might incentivize Page owners to start buying up Likes again.)
Facebook also launched Chat Heads, a spin-off of its messenger service, which got a mostly positive response. But that is not a source of revenue, either.
And today Sandberg said Facebook is building for Google Glass, which is cool, but certainly not a source of income anytime soon.
Meanwhile Zynga’s contributions to Facebook’s revenue continue to shrink. And anecdotally, users aren’t reacting well to Facebook’s native ad units.
Facebook’s innovations are around anything but traditional sources of advertising revenue. Yes, most forms of digital advertising are fundamentally ineffective. But for all the industry talk of solving the banner blindness and low clickthrough rates with native advertising and branded social marketing, digital ad spend is still dominated by traditional banner and search ads.
If Facebook turned on an ad network powered by its vast targeting capabilities, the company would hardly be fighting for each ad dollar it earns the way it does now. Instead, Facebook would be offering ad units that advertisers understand and have bought and sold for over a decade. The ads would be highly targeted, thanks to the terabytes of data Facebook stores on its users. Not to mention, the site already has an “in” into many sites around the Web thanks to its popular commenting, liking, sharing, and OAuth tools.
For two, as John Battelle pointed out in his January 2012 prediction that Facebook would launch an ad network similar to Google’s AdSense: Sandberg, alongside ad operations head David Fischer and ads product director Gokul Rajaram, built and ran Google’s AdSense product for years. They know ad networks.
That said, there are drawbacks, the most obvious one being privacy concerns. Facebook is the least trusted of the big online services, even though Amazon and Google likely have just as much data on us. As I noted earlier this year, the only company we trust more than grocery stores to use our data is Amazon: 66 percent of people in a Plancast survey said they were comfortable with Amazon using their data to promote relevant products. For Google, 41 percent had the same level of trust. And then there’s Facebook, which scored below credit card providers, merchants and cell phone service providers. Just 33 percent of those surveyed said they were comfortable with Facebook using data for ad targeting.
In fact, some have speculated that privacy is be one of the main reasons Facebook has back-burnered its ad network ambitions. From Ad Age:
Any type of Facebook ad network would open a new can of privacy worms, stalling spending commitments from media agencies, which could be a reason for Facebook’s hesitance in developing a network.
Agencies don’t believe Facebook appreciates how important privacy is, as demonstrated even by Zuckerberg’s mission that the world be “more open.” Combining Facebook’s first party data with that of third party data providers would raise the eyebrows of regulatory bodies, which Ad Age also argues will turn off media buying agencies:
For many media buying agencies, anything less than the standard [in privacy practices] won’t cut it when it comes to significant spending commitments.
For now, Facebook seems okay with that. The company has bigger, loftier goals in mind than a boring old ad network, anyways. Like taking over our phones, and developing for Google Glass. And maybe, with Graph Search or Home, bringing in those much-needed new streams of revenue.
[Illustration by Hallie Bateman]