Monetization of Facebook

Money PieI started writing a comment for Markus’ post about Facebook monetization, but it got long and post-worthy.

Basically, Markus said that Facebook’s only two options to improve their advertising situation is to better position ads or find advertisers willing to pay higher CPM rates. I would argue there’s a third option that the Facebook team is probably working on already: contextual advertising.

Currently, Facebook only has a simple user-targeted advertising program; you can order a “Flyer” that target’s the user’s demographics and associations. However, a Facebook Flyer does not take page content into account. It is not capable of showing a Starbucks ad because the user is reading a wall post with the word “coffee” in it. This level of relevance is powerful and Google Adsense is proof of this.

So, why not just use Adsense? Well, Facebook is a closed system. A user logs in and is granted access to certain content. Google does not have access to this content. Therefore, Adsense has no clue what would be a relevant ad for a given page. This also affects Facebook Platform developers. From Adsense’s perspective, Facebook applications are the same closed system that is Facebook.

The Facebook Platform is an impressive development achievement. I would be surprised if Facebook isn’t already developing an equally impressive contextual advertising program similar to Google Adsense. Coupling this contextual advertising with the existing user-targeted advertising would prove to be an incredibly powerful (and somewhat scary) advertising program.

Imagine…a friend writes you a message about cycling this weekend and ads show up in the sidebar for the three closest bike shops to where you live. Remember, Facebook has your postal code if you filled it in.