Facebook: The Advertising Network?

Facebook is ready to flex its advertising muscles. On Monday, Facebook’s business director, Dan Rose, addressed attendees of the DLD media conference in Munich, speaking of the success of social games on Facebook from developers like Zynga and opportunities to expand its advertising to its 500 million-plus users, according to media reports.

Touting the efficiency of Facebook’s platform for companies like Zynga, Rose reportedly told conference attendees that the tendency for games to become increasingly social represents an opportunity — but that music, video and other categories are also fertile ground.

The Internet is transforming from an information orientation to a social orientation, Rose reportedly said, where the wisdom of friends will become more important than the wisdom of the crowd.

Goldman Sachs $1B Investment

This conference was held only days after Friday’s closing of the US$1 billion Goldman Sachs private placement investment in Facebook.

Together with a joint investment of $500 million made by Goldman and Russian company Digital Sky, the latest transaction places Facebook’s value at $50 billion.Goldman originally offered $1.5 billion of the class A common stock to wealthy U.S. Investors. Facebook later capped the amount at $1 billion.

Goldman restricted the offer to overseas investors, fearing heavy media coverage in the U.S. might compromise the offering. The bank wanted to ensure compliance with Securities and Exchange Commission guidelines.

The investments, along with Facebook’s intensification of its advertising plans, could make the social network a bigger competitor for Internet advertising giants Google and Yahoo.

Facebook Growing Up

The new opportunities could also be the catalyst for a change in Facebook’s corporate culture.

“Mark Zuckerberg has always been adamant that the user experience for Facebook had to come first, and monetization second,” Carl D. Howe, director of anywhere consumer research for the Yankee Group, told the E-Commerce Times. “Should Facebook ramp up its advertising emphasis, that would imply to me that he’s changed his mind.”

Facebook will need to avoid flooding its pages with ads; junky ads helped bury Myspace.

“The challenge for Facebook will be whether it can monetize advertising in a way that is useful instead of intrusive,” said Howe. “So far, Google really is the only company that’s done that successfully and commercially in the online world. It will be Facebook’s job to prove that they are as thoughtful and business-savvy as Google. Because Facebook is privately held, we just can’t tell whether they’ve successfully threaded that needle yet or not.”

We They Were Coming

Since it has entered the big guys’ turf, Facebook will need to pump up its advertising game in order to compete.

“This was almost as inevitable as the sun rising in the east and setting in the west,” Laura DiDio, principal analyst at ITIC, told the E-Commerce Times. “They’re not doing this just to have people play ‘FarmVille.’ The thing about Facebook is this is coming just at the time we heard Twitter’s advertising could go over a $100 million this year, which is three times what it was last year. If Twitter is doing it, Google is doing it, and Yahoo is doing it, it’s inevitable that Facebook is going to do it. Zuckerberg is not going to be outflanked by the other wunderkinds.”

Still, Facebook will have to be careful when boosting advertising on the site.

“As more people move to social media, even television viewership is down,” said DiDio. “They’re being supplanted by these online social sites. And they’re all selling ads, even the dating sites. The only surprise would have been if Facebook wasn’t selling ads. What will be interesting is how they will police their ads. They don’t want to get into a situation like Craigslist.”

Privacy and safety of user information continue to be issues when it comes to Facebook.

“A lot of people will cash in on this and make money,” said DiDio. “We’re already seeing a bunch of companies that have created social network advertising using Facebook. What’s risky is the privacy thing. How much of our information are they going to share?”

1 Comment

  • DiDio said television is losing viewers to social networks, but it doesn’t have to be that way? Why not create a social network centered on television shows? I work for http://www.fargotube.com, a social network that’s centered on video and music. We don’t have any TV shows yet — it’s mainly music tracks, videos of live musical performances, and music videos — but we’ll probably get some TV webisodes before too long.

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