socialmediocrity

According to a report on InsideFacebook, Facebook have filed for a patent on inferential ad targeting.

And according to the report this goes beyond friend-connections targeting, as is currently available in the Facebook ad platform (allowing advertisers to target *only* connected friends of existing “fans” or “likes”), and covers the possibility of broader inference. What does that mean? Well, in a nutshell, that if you have infirmation missing from your profile, but amongst your hundreds of connections on the network there is some commonality or popular data item for that missing information, then it may be infered that you also share that piece of information.

To give a similar example to that in InsideFacebook‘s article, if you don’t publish details of your education, but enough of your friends have indicated they are all connected to the same academic institution, then it may be infered that you also came from that same institution yourself, and advertisers may target you based on that inference.

All of which sounds teribly clever, and in keeping with the notion that you are defined by the company you keep. However, there are a number of reasons why this approach can only suppress advertising effectiveness if utilised by an advertiser.

Firstly, accuracy.

I won’t for one minute imply that Facebook’s data is not accurate (indeed they would counter that by declaring it is not their data, but that of the user), but maybe, just maybe, the absence of the data is just the start of the story. I can imagine, for example, and to continue the same example, that students of celebrated institutions will *tend* to have a greater propensity to publish their affiliation than those that attend less well known and less envied institutions.

So consequently, and especially when we have developed professional networks that include people from all sorts of backgrounds later in life, the celebrated institutions become, logically, over-represented (if anything). Inference Targeting in this example, then, would only serve to exaggerate that over-representation, and presumably those infered ads *should* work significantly less well (diluting the overall effectiveness substantially). Algorithms to the rescue? Maybe, but not for a while, and not before a lot of mis-attributed inferences had been made (and reported)

Secondly, User-Suspicion.

Even if the inference was accurate, it is easy to acknowledge that an advertisers’ use of data that I haven’t published about myself could “spook” a user – and is unlikely to solicit a positive response. I liken it to the email I got from Alliance & Leicester yesterday, warning me of a security issue and inviting me to reconfirm my details by following their link to the security test area. (I don’t bank with Alliance & Leicester) If I did bank with them though, it is to me clearly a con trick, and I can entirely understand why users might get caught out by it from time to time.

My final offering would be that, users who consciously publish these details will, in part at least, accept that such information may be used to deliver advertising to them. They will have already witnessed it, consciously or not, and will be familiar with its’ occurence. Arguably, they have given expresss permission for others to use that information. Users who have intentionally not published that data then, again at least in part, have specifically chosen not to publish that data, and consquently are likely to be less welcoming of those ads. And from a privacy perspective, this could be dangerous new ground for Facebook to be forging.

There are surely many other reasons why the inference itself may be inaccurate, but there is only very little prospect of better returns for advertisers. The only real purpose for this, then, is to dramatically increase the scale of a prospective campaign, and consequently drive ad revenues up whilst decreasing effectiveness.The same thing happens all the time, and we have seen it time and again, with some direct similies on the way paid-for Search has evolved.

If, or when, it becomes available, buyer-beware. Facebook’s focus on revenue will increasingly pit them against user experience, and this development might see another battle erupt between user and provider.

With new figures showing Facebook overtaking MySpace in the US we’ve begun thinking again about Facebook’s ad revenue model. Of course a recession is always going to cause trouble and concern for ad revenue business models, but with a public platform available, we can begin to get a feel for their actual income.

According to Compete.com, the US user base has just exceeded MySpace’s for the first time, with 59.7 million unique visitors, versus MySpace’s 59.5 million. Google’s AdPlanner appears to show MySpace barely holding on to it’s lead, but it clearly won’t be long before they too will be proclaiming the beginning fo the end for MySpace too.

Of course there’s been constant speculation about the real value of the business ever since the Microsoft investment, which was rumoured to value it at a remarkable $15 billion. Leaked memo’s, emails, and recounted conversations since have reportedly shown that even some shareholders placed some more realistic valuations of $3-5 billion on it.

Heck, we’ve even had the valuation estimated on the Whopper Sacrifice application, placing a tongue-in-cheek $1.8 billion valuation on the community. Before Facebook banned it , of course. And not for the low valuation it appeared to place on the business either.

But whilst I might be over-simplifying things enormously, there’s enough information in the public domain to make an educated estimate.

Google AdPlanner tells us that, worldwide, and to the nearest billion, Facebook attracts 29 billion page views per month, and this is rising steadily.

We also know that, whilst it may vary from country to country and page to page, there are normally 2-3 ads on each page viewed on Facebook. Some pages have no ads on them at all.  So for the purposes of a non-scientific estimate it is probably safe to assume an average of 2.5 thoughout.

That gives us an ad inventory estimate of 72.5 billion ad impressions. every month. And rising.

Of course all the page views in the world (and let’s face it, they do seem to have most of them) are only valuable if you can secure advertising for them all, and at high enough rates. So where would we find out the rates Facebook are receiving for their inventory?

OK, no more rhetorical questions. Although the ad platform shows lower figures rates right now, they do vary, and of coruse much of the ads are not placed through the public platform, but in guaranteed delivery deals. What we can see is that at an average CPM rate of $0.50, if that is what they were achieving around the world on average, would give them ad revenues in 12 months of $435 million. Even if the user base continues to double every 12 months, the next year will generate approximately $630 million.

Of course if they’re not attracting those CPM rates, and let’s be clear that these are not the rates quoted at the time of writing for any markets on the public ad platform, then revenues will be significantly lower, and the same goes for the growth estimates. Sooner or later the rate of growth has to slow down, even for Facebook.

So with an ad revenue income estimate of $630 million, the valuation becomes clear once you determine whether you cup is half-full or half-empty. And of course which version of their costs you are prepared to believe. Alternative income streams should not be ignored entirely, siuch as sponsorship deals, and broader content deals, but with renewed prominence of the virtual gifts business that generates c. $40m per year income, Facebook could be generating $700m in 2009 if they get it right, the vast majority still coming from ad revenues.

Let’s assume costs of $250 million per year, leaving $450 earnings, then a $4.5 billion valuation would not be so obscene. $15 billion, even now, would be.

The key to moving forwards however will be in attracting advertisers, and finding ways to deliver excellent ROI for those clients in order to keep the ad dollars rolling in, at a time when advertisers are looking to reduce costs and slash marketing budgets.

Can advertising on Facebook standup to dominant low cost channels such as paid-for Search, and begin to make itself a regular feature on a marketer’s media plan? The smaller advertisers and marketers are making it work, but not until the larger worldwide agency groups find their way, and bring their clients to the party will Facebook see any great acceleration in it’s ad revenues, and until then their valuation will be debated and speculated over repeatedly.

If you take the time to read Facebook’s ad guidelines you could be forgiven for thinking that they were being overly-protective of their users. In amongst the normal “nothing illegal” clauses, there are a number of more interesting, and perhaps intriguing clauses, that perhaps say more about the founders ideals than any long-term stand against good old fashioned good fun.

Clause 9 gives us a list of stuff we shouldn’t do:

We do not accept advertising referencing, facilitating or prompting the following:

• Tobacco products
• Ammunition, firearms, paintball guns, bb guns, or weapons of any kind
• Gambling, including without limitation any online casino, sports books, bingo, or poker
• Ringtones
• Software downloads, freeware, or shareware
• Scams, illegal activity and/or illegal contests, pyramid schemes, or chain letters
• Uncertified pharmaceutical products
• Adult friend finders or dating sites with a sexual emphasis
• Adult toys, videos, or other adult products
• Web cams or surveillance equipment
• Web-based non-accredited colleges that offer degrees
• Inflammatory religious content
• Politically religious agendas and/or any known associations with hate, criminal and/or terrorist activities
• Political content that exploits political agendas or uses “hot button” political issues for commercial use regardless of whether the advertiser has a political agenda
• Hate speech, whether directed at an individual or a group, and whether based upon the race, sex, creed, national origin, religious affiliation, marital status, sexual orientation or language of such individual or group
• Content that advocates against any organization, person, or group of people, with the exception of candidates running for public office
• Content that depicts a health condition in a derogatory or inflammatory way or misrepresents a health condition in any way
• “Get rich quick” and other money making opportunities that offer compensation for little or no investment, including money making schemes positioned as alternatives to part-time or full-time employment

I find the third bullet the most interesting, as the more time I spend on Facebook, the mire it appears as though it is jointly sponsored by Sky and Betfair – Betfair Casino, Betfair TaiKai, Betfair Sports betting. You name it, Betfair are advertising it. I guess they didn;t read as far as bullet 3 when they accepted the ads.

As fors software downloads, although they are treated in a separate and expanded section within the guidelines, this too is somewhat overlooked. I know for a fact of at least one advertiser whose service requires you to download their client, and yet they seem to have had their ads accepted. And does this exclude the likes of Skype, who currently require you to download software? Presumably Firefox couldn’t promote themselves if they wanted to, and all those ads for microsoft and MSN. Do their sites really not have software downloads on them?

It would be great if the guidlines and rules were so simple as to write them down in a few bullet points, but it seems as though they are verging on the uncompetitive if some online casinos are more equal than others, which appears to be the case right now.

Through extensive use of the Facebook ad platform, and no small amount of chance, I stumbled upon (not literally) the fact that Facebook have slipped another targeting feature in to their ad platform.

The public platform is suggesting that we you now target users by their job description. Which of course could be something of a boon to B2B advertisers, and a distinct advantage to recruitment advertisers of course. The phrases have begun appearing in the keywords

I’m not sure it will be enough to reverse the CPM decline the ad proliferation has caused, and especially not in this climate, but definitely a positive move. And like dynamite, it can benefit users and advertisers and Facebook alike, as long as it is used responsibly. Facebook themselves will need to maintain their vigilance, and avoid any temptations to allow it to be exploited harmfully.

And of course it is not only B2B advertisers that stand to gain. It is probably the greatest indicator of an individuals income level too, which makes the targeted groups all the more interesting to more niche and high-end advertisers.

The platform will begin to get very interesting when Facebook begin to separate some of these targeting variables, and we can begin to genuinely micro-target users based on multiple interests, job titles, and fan page affiliation.