Facebook has announced some significant changes to its “data use policy,” including ones that pave the way for a new online advertising network driven by Facebook consumer data. Until recently, the vast amounts of consumer information accumulated from the online activity of Facebook users has only been used to drive targeted advertising on Facebook itself. Now, the company’s new policy stipulates that it can use that same information to display ads on other sites as well.
Essentially, Facebook is taking initial steps to construct an external advertising network, in an effort to appease investors and (potentially) dramatically increase its revenue. A growing number of Facebook users are bypassing internal ads by accessing the site via mobile devices, so alternative revenue sources are a priority for Facebook and its advertisers.
Chris Dixon, a partner at Silicon Valley venture-capital firm Andreessen Horowitz, says “An external ad network is inevitable. Google proved this model with Adsense. With an already huge base of advertisers bidding on CPCs, it is impossible for most other ad networks to compete on publisher payouts. But Facebook’s traffic is so great now that an external ad network might increase their revenues by 2X or so.”
Facebook has experimented with external advertising prior to its most recent data use policy changes. Sponsored stories and other forms of Facebook ads started appearing on Farmville developer Zynga’s website earlier this year. Another early adoption outlet for Facebook’s expanding advertising network could be Instagram, which was recently acquired by Facebook for $735 million.
Regardless of where it pops up first, Facebook’s external advertising network appears to be an inevitability. Erin Egan, the company’s chief privacy officer, says “Everything you do and say on Facebook can be used to serve you ads. Our policy says that we can advertise services to you off of Facebook based on data we have on Facebook.” The attraction of such a policy for Facebook and its advertisers is obvious. With so much detailed information about such a vast number of consumers, the Facebook database has the potential to target ads with more sophistication and more accuracy than even Google. Instead of guessing about a user’s preferences based on browsing history, Facebook can mine the preferences that its users volunteer through their profiles.
Ingram, Matthew. “Facebook Makes it Official: An External Advertising Network is Coming Soon” Bloomberg Businessweek, 11/26/12.