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How Facebook fixed the social advertising problem
Fortune Tech:
So much of the discussion around Facebook centers on the way it's shaping our social interactions with others that it's easy to overlook how profoundly the company is rewriting the rules of online advertising. When Facebook's revenue is mentioned, it's usually in the aggregate: The six-year-old company will bring in as much as $2 billion this year and close to twice that next year.
The bulk of that figure will come from selling ads on its social-network platform – a web technology that was seen as barren soil for ad revenue until a year or so ago. Facebook made social ads pay through a number of tricks. One of the most important innovations was to reach out to the smallest advertisers with self-serve ads on its social-networking site.
Setting up a Facebook ad is simpler than using Google AdWords. To test the idiot-proof concept, I set up a page for my work as a freelance writer. It wasn't terribly elegant but it did take less than two minutes. In another five minutes, I had created an ad targeted at my own demographic – male, 40s, college grad, living in the San Francisco Bay Area and interested in business or technology journalism.
Facebook instantly narrowed it down to 4,220 members who might see the ad and recommended I bid between 30 and 45 cents per impression, or between 72 cents and $1.05 per click. Granted, it must have been one of the most thoughtless and ineffective ads in Facebook's history, with no hope for a return on the 30 cents I bid. But it illustrated an important point: In less than ten minutes, any business can not only hang up a virtual shingle on Facebook, it can also became an advertiser.
Basic tutorials on the site help advertisers design more effective ads. Once they are live, they can receive customizable, granular data on its performance in a simple format that encourages them to experiment with different kinds of ads. Tweaking the location or demographics of users or trying out different text, images and keywords is aided by data comparing the response to alternate ads.
Facebook benefits from the experimentation too. The company doesn't charge for the data, but the experiments of its legion of advertisers offers the company an unprecedented insight into what makes people click on ads on its site.
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