Launch of Facebook Category Partners

With Facebook representing between 9% and 25% of US web traffic (depending on which metric you go for) and ranking on Alexa as the #2 site in the world with 42% of global users visiting, it’s almost impossible for the platform not to have a significant resonance with advertising professionals as it is positioned to take on Google and other choice media properties in the US and globally.

But while Facebook’s scale and reach into the market has grown exponentially, its value as an ad channel has been less convincing than what one would assume from their numbers around user engagement and traffic. ?This has led to a couple of defining moments that Facebook’s leadership had to address in order to advance as a blue chip media property. Two large struggles they?ve encountered are last year?s decision by GM to withdraw from Facebook advertising, and the second was the extremely difficult IPO, which had investors and the markets openly calling out Facebook’s uncertain routes towards Google-sized revenue generation, both on the Web and in Mobile.

Since then, Facebook has shown a great deal of focus around addressing the effectiveness of their platform for advertisers. At Roundarch Isobar, we see several areas of concentration that have allowed Facebook to rapidly and effectively align their offerings to address these issues:

– Mobile?advertising has been a real pain point for Facebook and has been viewed by the market as major concern in terms of their paid media effectiveness.? Perhaps their problems with mobile ad engagement have been inflated or overstated a bit in the media, but either way Facebook has made significant progress in addressing the market’s concerns and now shows forecast revenues of $1.5bn+ for 2013 ? a very strong turnaround in a very short time.

-?Effectiveness?? Facebook has historically never been able to convince the market of the value of a ?Like? or other social interaction in terms of driving sales. This perceived failure to deliver impact influenced GM’s decision to withdraw from the channel, and the lack of an agreed econometric model to connect social endeavors to the bottom line is still lacking.

-?Targeting?? it’s been widely acknowledged that Google?s ad-targeting technology has been at the top of the market for some years. ?While Facebook may be able to play back whether you like Garth Brooks or Skrillex, and whether your friends are businessmen or college students, leveraging that type of data to help brands determine whether consumers are considering a home purchase, prefer gourmet vs. cheap, or are seeking to fly coach opposed to business class, has not been possible to the same degree. In a market where performance is premium, this has hurt their revenue potential.

Facebook’s recent announcement that they are integrating third party data sources such as?Acxiom, Datalogix, and Epsilon into their targeting matrix comes as little surprise. In fact perhaps the only surprise is that Facebook decided to take a partnership strategy rather than as a series of wholesale acquisitions.

The greatest gaps that these partnerships fill seem to be in the areas of home, financial and demographic. For example, Facebook might have previously been able to tell that Joe Smith is interested in home furnishings, but now armed with Acxiom data, Facebook can determine that this is because he has just moved house from Jersey City to Middletown CT, has stepped up the value of his property portfolio by $200k, buys cars new over used, and chooses to buy premium over own-brand at the supermarket.

The ability to combine the data to give a holistic view on preference as well as a look into the specific aspects of a consumer?s profile is accomplished by the cross referencing of Facebook?s deep graph information relating behavioral, lifestyle and media insights to the offerings of these 3rd party partners. If executed well, these partnerships not only fix Facebook?s targeting gap, it could accelerate Facebook up to a par with Google or anyone else. Initial trials from Neiman Marcus and Pepsico are reported to be positive, and even GM is willing to give Facebook another try based on these developments.

Things do look promising, however there is still some doubt over how effective this might ultimately be. ?The problem? Well-managed trials of marketing platforms don?t necessarily show how things will perform in the real world. Reporting on the success of closely managed trials is all very well, but can accountability and analytics be delivered at scale? There’s no doubt that this is achievable, and with Facebook’s remarkable ability to realize and deliver solutions to issues that directly affect their revenue, it is very feasible that we will see multi-platform accountability delivered at scale over the coming months.

What about privacy? As with almost every announcement from Facebook related to advances in their platform, there is an accompanying chorus of privacy concerns. While this is of great interest to data privacy pressure groups, who are already raising further questions to the FTC, Facebook seems to be increasingly adept at foreseeing data issues.? Fear not, as they seem to be on top of the anonymisation process in place between their own systems and those of their new 3rd party data partners.

In summary, Facebook is once again on the move. They?ve worked incredibly quickly to address their issues around mobile revenue and are now taking aggressive steps towards greater targeting effectiveness. It is crucial that they not only be able to deliver the solution at scale, but also prove its effectiveness.? When that happens we can confidently expect to see advertisers reengage with Facebook as an ad channel, leading to celebration on the part of shareholders, as accelerated growth in ad revenue would be sure to follow.