Enough with the entitled whining -- Facebook isn't running an advertising charity

By Erin Griffith , written on October 30, 2012

From The News Desk

Facebook's history has not been without a healthy dose of entitled outrage. Each time the company releases a new feature, users are horrified (NOOOO! Not change!) and threaten to boycott. The spirit of those boycotts are frequently undercut by the fact that they're organized... on Facebook.

No surprise, the mob is after Zuckerberg again, with torches re-lit and pitchforks sharpened. This time the uproar isn't about privacy (for once). It's about something called Edgerank. That is the algorithm Facebook built last year to determine which people see which posts. It's meant to give you updates from only the people and Pages you're most interested in.

Facebook has always been pretty open about how it works, and that hasn't changed. The reason everyone is suddenly pissed off is that, as Facebook rolls out new ad products, page managers are noticing exactly how few fans their page's status updates actually reach. Only 15 percent. That stat is according to Facebook -- and have been used to pimp its paid product, Reach Generator, the precursor to Sponsored Stories. The company is constantly tweaking the algorithm, and the most recent tweak specifically decreases the exposure of brand pages.

Facebook's 4 million business pages are managed by brands, celebrities, artists, charities, and commercial organizations, which had, until recently, accumulated Facebook fans and marketed directly to them on the platform for free. Now Facebook, a commercial entity with a top line, bottom line, and profit motive just like the very owners of the pages on its platform, is charging those page-owners to increase the number of fans they can reach. The page owners are not happy. How dare you limit access to the followers they painstakingly accumulated on your platform?

I get it, but to them I say: What the hell did you expect? And secondly, Facebook has to do this.

I'm responding specifically to a New York Observer story and the reaction blog posts that circulated last week. One, posted on website called Dangerous Minds, breaks down the prohibitive costs it would take him to advertise to his 59,000 fans on Facebook. He concludes that Facebook's quest to make money is "extortion" and "information superhighway robbery."

A clever turn of phrase but not an accurate one. It's not highway robbery if Facebook controls the roads. That's like accusing California of robbery for making you pay a $5 toll to cross the Golden Gate Bridge. You may not like it, but it's the fee they levy for you to use their infrastructure -- just like Facebook.

Facebook has do to this because it needs to make money and, more importantly, because it can only clog newsfeeds with a limited number of brand messages. Facebook has three constituencies right now. Users, shareholders, and advertisers. They exist in a sort of symbiotic recycle-reuse-reduce triangle: Facebook needs users to make advertisers happy, it needs advertisers (aka revenue) to make shareholders happy, and it needs shareholders in order to stay in business continue making the people Zuckerberg cares most about -- the users -- happy.

So Facebook must tread very delicately with each constituent. It can't go overboard on ads to the point where it turns off users, and they move on to another social network. That's what Myspace did, and look how well that worked out. And that is the specific reason Zuckerberg provided when asked about the latest Edgerank tweak: The feed’s quality is crucial in order to not turn off users, he said on Facebook's second quarter earnings call.

Likewise, Facebook can't go overboard charging too much for ads to the point where it prices out small businesses, the ad buyers Sheryl Sandberg has called the "holy grail" of Facebook's advertiser base. Lastly, Facebook can't act like it has placed the user experience on such a pedestal that it is turning down large swaths of revenue, which investors are desperate for it to earn.

And so, we have the current situation. Facebook could have kept brands off its platform altogether, relegating them to direct sales banner ads on side of the page. But the company is already maxing out that business, earning more than $3 billion in sales last year. Rather than earn capital only with the ineffective but cheap banner ads on the side of its pages, Facebook opted to go for something all of Web advertising has been grasping at for years: engagement. Thus, Promoted posts.

Facebook's pitch to brand advertisers is this: Promoted posts are "native ads." They appear in the sacred center-of-page news feed right next to photos and jokes from a user's friends and family. Users can Like, comment, or share the ad unit because it's a status update. That's right, they can share your ad (and inexplicably they often do), giving you free distribution beyond your initial ad buy, and the best part is, it's driven by word-of-mouth. Here, Internet, is a solution to the dumb, ineffective, hated banner ads you've complained about for 15 years. Finally.

If Promoted Posts turn out to be what Facebook says they will be (we're early days here), this can make all three entities happy. Facebook can serve a limited amount of very effective ads that publishers pay a premium for because of their inherent value. (The outrage by Page owners is testament enough to their effectiveness -- If Page owners are this pissed they've been bumped from the news feed, they clearly got a lot of value out of it.) Meanwhile, in the ideal Promoted Post world, users' newsfeeds aren't bombarded with ads, because Facebook has limited the amount of non-promoted updates make their way into a users' feeds. Lastly, Facebook can be more than just an ad network that happens to have good targeting data, which should boost its attractiveness to shareholders.

The problem, of course, is that until last year, Facebook gave this valuable access to users away for free. I'm shocked that anyone marketing on Facebook's platform would think they'd get to ride that gravy train forever. Perhaps I'm giving people too much credit for understanding that Facebook is an advertising company. Giving away its core product for free is probably not a smart long-term plan.

Think of it this way: Google is also an advertising company. If you want to appear in Google's search results, you can invest in SEO and get traffic organically. Or you can buy paid search ads, which aren't always cheap. In many ways, Facebook is no different: If you want to show up in news feeds, you can produce really good social content that gets shared organically. Or you can buy paid distribution via Promoted Posts, which aren't always cheap.

Facebook's new favorite talking point is that its newsfeed ads are more like 30-second TV spots than Web ads. That's a very calculated comparison, particularly for a company under pressure from Wall Street to better monetize its unique role in controlling all of our social graphs. TV advertising brought in $71.8 billion in the US last year while display ads brought in just $11 billion.

That's because TV ads are expensive, which brings us back to our complainers. If Facebook, with its massive audience and enviable ability to insert brand conversations into your social context, is giving up prime top-of-newsfeed real estate to a company and not a human, it is not going to give it up for cheap. Some small businesses may complain about this, but plenty more will pay and, in doing so, celebrate death of that annoying banner ad.

[Illustration by Hallie Bateman]