Advertising, native monetization models, and thinking about Facebook’s future.
Dennis Crowley, talking to Dan Frommer about where Foursquare is going:
Our belief has always been, in order to connect people to places, and places to people, there’s a way to insert a dialogue with a merchant that in a way doesn’t feel like advertising, because the users are getting some tangible benefit out of it. It can be just special treatment, like you get to cut the line. It could be that you save a couple bucks. It could be that when you bring your friends, you get something special. There’s a whole wide variety of it. It’s just rewarding the user for things that they’d be doing anyway with Foursquare.
The key behind Foursquare’s monetization ethos: it’s native to what people do. Think about how Foursquare talks about how they facilitate “advertising”, or how Kiip talks about enabling brands to reward people for moments that matter (key achievements in games), or about how Buzzfeed enables “in-stream social advertising”, or about how Tumblr is launching a feature for people to pay to highlight posts (likely to be impression-based in the future), or about how Pinterest is making money, and what’s striking is how each monetization model is deeply tied into the different ways people use each service.
Facebook’s future is its social utility, not its social network.
This has special relevancy for the topic-du-jour, Facebook and advertising. Behind that $3 B in revenue is a bit of a mystery: exactly how all the different ad units performing, and how their various different kinds of advertising opportunities are expected to grow. Obviously mobile advertising is a big key, but that’s simply an attempt to extend their existing advertising model to a new set of under-monetized impressions. Beyond efforts like mobile, how will Facebook grow their advertising revenue? There’s a couple routes:
- Increase impressions: add new users, increase active users, direct more users to brand pages, etc.
- Increase clicks: Alter the ad units so that they way they are displayed are more engaging, inviting, and natural.
- Increase clicks: Target and optimize the ads being displayed to make them more relevant, meaningful, and appropriate to the audience and their intent.
- Increase rates: Based on success in new ad units or increasing clicks, increase the rates they are able to charge.
- Change the product: Alter the product so that the reason why people use Facebook isn’t purely about using the social networking features.
Search is a highly efficient form of advertising because it’s highly tied to why people are using search. And that’s the fundamental problem with Facebook’s advertising model: people don’t go a social network to use ads.
This isn’t a new argument, obviously. And it’s no different from how advertising has siphoned off mindshare, eyeballs, clicks from content for decades.
But it exposes the issue Facebook faces: Facebook’s biggest business opportunity isn’t advertising, but something more core to the how and why people use Facebook. Facebook’s future is its social utility, not its social network.
Of course, Facebook knows this. The social network is the core asset and the enabling platform behind their other initiatives to expand how people use Facebook. And it’s these new features and range of first- and third-party products built on top of the social network (leveraging Open Graph et. al.), that expands Facebook’s future beyond it’s current advertising-supported social network model. It’s not just about more impressions and more sharing, but about creating the new way for people to use Facebook. Once you change the way people use Facebook, you’ve created new business opportunities that have either 1) have nothing to do with advertising (e.g. facilitating transactions, which is already a sizable business for Facebook), or 2) create interactions and moments that are more tightly integrated and attuned to advertising than display-based advertising. *
Obviously Facebook will make a lot of money in the meantime, but like Google has used their advertising cash cow to subsidize their pursuit of other business initiatives to support a broader scope of how people use Google and the web, Facebook has the potential to use their advertising cash cow to expand the ways in which people use Facebook.
The key for Facebook is to not let their cash cow blind them to their future beyond the social bubble.
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* A tangent: This holds for mobile advertising also. The future in mobile advertising isn’t simply in porting over the methodology of display advertising from the big web to the small web, but about creating new forms of advertising more native to mobile. More on that later.
