An update to this column: According to the Wall Street Journal, any of Facebook’s most popular applications have been transmitting identifying information — in effect, providing access to people’s names and, in some cases, their friends’ names — to dozens of advertising and Internet tracking companies. See here (paywall).
This year, Facebook will make about $1.5bn in advertising revenue. On average, this is about three dollars per registered user, a figure that is significantly higher for the 50% of the social network’s population that logs in at least once a day. How does Facebook achieve such numbers? Last week, we looked at the architecture Facebook is building as a kind of internet overlay. Now, let’s take a closer look at the money side.
If Google is a one-cent-at-a-time advertising machine, Facebook is a one-user-at-a-time engine. The social network is putting the highest possible value on two things: a) user data, b) the social graph, e.g. the connections between users.
For a European or American media, one user in, say, Turkey (23m Facebook users) carries little or no value as far as advertising is concerned. To Facebook, this person’s connections will be the key metric of his/her value. Especially if she is connected to others living outside Turkey. According to Justin Smith from the research firm Inside Facebook, in any given new market, the social network’s membership really takes off once the number of connections to the outside world exceeds domestic-only connections. A Turkish person whose contacts are solely located within the country is less valuable than an educated individual chatting with people abroad; the latter is expected to travel, has a significant purchasing power and carries a serious consumer influence over her network. As a result, Facebook extracts much more value from a remote consumer than any other type of media does.
Advertisers rely on three main strategies on Facebook, as explained by Frederic Colas, chief strategic officer for FullSix Group, a Paris-based interactive agency. The first one is the fan page. The goal is to manage and optimize user engagement with a brand through community management. Numbers are impressive.
Here are the top 15 compiled by Facebakers:
Getting high traffic on a fan pages is still more art than science; interaction volume varies widely. In a recent study (here, in French), FullSix demonstrated that, within a same market segment such as fashion, the number of monthly interactions per 1000 fans will be 4 times more important for H&M (4.3m fans) than for Gap (0.75m fans) and 25 times higher for Victoria’s Secret (8m fans) than RayBan (1.4m fans).
The second approach uses social plugins (such as the “Like” button, recommendations, external login, etc.).
And the third strategy is more like classic advertising campaigns with an unparalleled degree of targeting: Facebook makes possible to combine precise parameters, ranging from location to company name and the precise timing of an ad with a high degree of precision (find the women above 40 who work for IBM, in northern New York state and deliver an ad every Friday between 18:00 and 22:00, for instance). This advertising resource is self-serve, totally automated, and accounts for half of Facebook’s commercial revenue. More