Wednesday, October 24, 2012

How Facebook Advertising Should Really Work

A while back, Facebook's stock price got hammered by their recognition that they were struggling to monetize mobile. Not long after that, more news came out of Facebook that they were focusing more of their advertising on retargeting.

The retargeting story was an admission that letting advertisers target audiences based on their profiles was a rather ineffective method that delivered poor ROI. With retargeting, a technique that had been used elsewhere on the web for quite some time, Facebook was seeing doing a better job of delivering conversions and seeing better monetization of their traffic. Across the online advertising world, there was sort of a collective, "duh". Among the analyst community, there was a small howl of, "what happened to the best minds of our generation?"

Fundamentally, the real problem here is that for all of the "potential value" of Facebook's big data, its massive volume of user tracking data is disconnected from its advertising programs. Think about that, Target knows enough about its customers to be able to determine how pregnant a woman is based on what they've purchased, but Facebook's most intelligent answer for advertisers is whether the user has self-identified as male or female on their profile page.

This is the great Facebook illusion. On the one hand, they have this user interaction platform that's great for harvesting user data. It's something that everyone talks about. And yet, for all intents and purposes, they haven't come up with a way to bottle that stream and make it easy for any advertiser to get a good value from it.

Contrast that with Google and their Adwords program. With Adwords, they came up with a way for advertisers to benefit from the underlying value and functionality of their platform, to integrate ads with search.

This is the "Unified Theory" problem that Facebook needs to solve. Admittedly, there are a host of challenges to balance, not the least of which being privacy and utility, but if the can crack that nut, then Facebook will be worth something closer to the hype. Until then, it's not much more than an Internet broadcast network.

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