SocialAds: Who Wins?

Tongues are wagging about a new Facebook advertising format, scheduled to be announced next week, that could finally make every online marketer’s dream a reality.

According to the rumors, Facebook plans to announce something called SocialAds, which would use the cookies it drops on members’ machines to deliver targeted advertising to them on other sites– something online advertisers have coveted since the dawn of the Internet.

This wouldn’t be so much a technological feat, but a bizdev triumph. The idea first cropped up in 1999, when ad network Engage tried to combine information about Internet users from multiple Web sites onto a single profile, represented by a single cookie.

Participating publishers would all feed their anonymous information into Engage’s database, creating a more complete view of an individual than any one site could provide.

And advertisers could then find the sports fanatic or shoe shopper it was looking for on a variety of sites.

The problem for Engage, in those early days, was that it could never get a critical mass of profiles within any category that was big enough to satisfy advertisers who typically buy hundreds of thousands of impressions.

Fast forward.

Facebook has 51 million users, with an average growth rate of three percent per week. Its user base is big enough to support the demographic slicing and dicing that advertisers love. Moreover, Facebook knows plenty about its users without having to track their behavior.

“If you’re a social network, and you ask new users to fill out profile pages — what movies you like, favorite TV shows, age and location — those are forms, so you have very good structured data,” said Jeremy Liew, a social media investment expert and partner at venture capital firm Lightspeed Venture Partners.

If Facebook can deliver ads to members on other sites, it will have something better than a Google AdSense killer. AdSense ads are targeted to a page’s content, which limits the number of possible ads that can be shown.

Targeting by profile across Web sites would display ads that were relevant to the user, rather than to the site, and let publishers—and Facebook—collect a premium for ads even when they were shown on less highly trafficked sites.

The question is, who is going to handle the ad delivery?

Under the terms of an October 24 agreement, Microsoft is the exclusive third-party advertising platform for Facebook; it’s been delivering ads there since 2006. Microsoft also is the exclusive provider of standard banner advertising for Facebook, and it has a 1.6 percent stake in the company.

Microsoft is working
a similar way to improve ad relevance by targeting user profiles with its adCenter. It combines registration information from Hotmail and Windows Live Mail with other registration information on its other properties, including MSN and Live Spaces, to create richer anonymous profiles.

Combining Facebook user profiles with Microsoft’s own profiles could make the pot sweeter, allowing Microsoft to greatly extend the reach of its premium targeted advertising. This would be a huge edge for Microsoft’s ad sales team.

Microsoft did not respond to a request for a briefing, and a Facebook spokeswoman declined to comment on future products.

But a closer examination of the press releases announcing and detailing the companies’ partnership suggests there seems to be a lot of room for Facebook to try this on its own.

Microsoft is the exclusive third-party ad platform, but that doesn’t seem to preclude Facebook from developing its own platform. Nor would the agreements stop Facebook from providing non-banner advertising on its site.

If Facebook did go it alone, it would need to laboriously create its own advertising network and buy or build ad-serving technology.

One very valuable type of Facebook real estate is still up for grabs: Facebook widgets. The wildly popular third-party mini-applications use the Facebook application programming interface (API) to provide functionality within the site.

And yesterday’s announcement of the OpenSocial standard for widget interoperability ignited speculation about new powers for Google, which heads the initiative.

However, while some widgets do show ads or allow marketers to sponsor branded interfaces, it’s at the discretion of the widget maker, not of the host site.

“There are plenty of ad networks out there that are happy to serve ads and want to extend into widgets, and there are also specific widget ad networks,” says Konstantin Guericke, CEO of Jaxtr, a company that enables phone communications within social networks. “But the widget is yours — not MySpace’s or Facebook’s.”

While social networks could possibly get some useful information about members based on their widgets’ calls to the site APIs, Guericke said, “I think the lower hanging fruit is using the information Facebook has to let anonymous users see better ads in other places too. That’s a very important value that social networks bring—independent of widgets.”

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