Facebook Comes of Age

Facebook had a rough start on the stock market, due-in part-to its monetization strategy (or perceived lack thereof). In mid-June of this year, a year after the Facebook initial public offering (IPO), Wall Street got bullish once again when it came to Facebook. The reason is simple. After years of struggling to devise a business model that pleases advertisers and the all-important users, the company has introduced a strategy for monetizing the dynamic social interactions that occur at the heart of the platform-in the newsfeed (this is something I urged the company to do in a piece published in MediaPost back in 2010).

Earlier in the year, Facebook launched News Feed ads. These are ads that appear in users' newsfeeds as posts. Users can like, comment on, or share these ads just as they would regular posts. As a result, unlike Facebook ads that appear in the right hand sidebar, News Feed ads are sold on a cost-per-insertion, rather than a cost-per-mille (CPM) or cost-per-click (CPC) basis. Moreover, each user can only receive one ad insertion per day so as not to clutter his or her newsfeed. 

This is a brilliant scheme because it means that the distribution of the ads, although initially driven by a paid insertion, is really determined by EdgeRank-the same algorithm to which all social interaction on the site is subject. If users like, comment on, or share the ad, then it will be seen by additional users just as would any piece of content on Facebook. In other words, just as Google did in 2000 with AdWords, Facebook is truly monetizing the core of its platform. 

Later in June, Facebook upgraded its Page Insights tool to provide marketers with better visibility into the performance of their pages by shifting from its own lexicon to the standard naming convention for social media metrics. Instead of PTAT (People Talking About This), the tool now displays likes, comments, and shares individually, although PTAT can still be viewed in the data export files. 

In addition, instead of  Virality Rate, the tool now uses the term Engagement Rate to refer to the percentage of people who have liked, shared, commented on, or clicked on a post after seeing it. These changes appear to be superficial but suggest that the company is making a concerted effort to provide more value to its business users. The changes in Insights reflect a company that has fully internalized the realization that future growth depends on widespread adoption of the platform by mainstream marketers rather than the members of a vanguard niche. 

In all fairness, Facebook has clearly been moving in this direction for many years. However, the company has had to tread lightly in developing its business model so as not to alienate users. Facebook's first attempt at monetizing its platform back in 2007, Facebook Beacon, was a disaster because it represented a level of intrusion that was unacceptable to users at the time. Eventually, the company shut down the Beacon program but continued to offer limited advertising on the right sidebar of the user interface. Over the years, the company has slowly executed its monetization plan in line with users' evolving expectations. Early in 2012, several months ahead of its IPO, the company launched its premium advertising platform. The platform expanded its ad inventory to include promoted posts, high-impact units (on the sign-out screen), and expanded targeting, including the ability to target Hispanic users (the importance of which I stressed in my July 11, 2013, column for econtentmag.com).

All of these newer monetization tactics have been thus far acceptable to users. Moreover, initial reports indicate that the new News Feed ads have a much higher click-through rate and a much lower CPC than Facebook's sidebar ads, as well as online display ads overall. Now that Facebook is able to fully monetize its platform through News Feed ads, the next logical step is to permit advertisers to insert video ads into the new paid newsfeed posts. However, given the company's track record in rolling out its business model, it's likely that it will take its time before advancing to the next phase.