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Facebook has built the internet's largest ever social network, and on the back of that, a multi-billion dollar business.

Not surprisingly, a big part of that business is advertising. Much like Google before it, Facebook serves as a gateway to millions upon millions of consumers. On volume alone, Facebook makes a mint.

The ads it distributes? They're not always so hot.

While many if not most major brands are now active on the site in one form or another, Facebook's self-serve advertising platform still seems far more popular with advertisers hawking 'interesting' products and services, or pushing users to their Facebook apps.

Could that change?

For Facebook, it almost certainly has to if it hopes to build a sustainable long-term business. It's biggest hope is that all of the data it collects will help it help advertisers connect with consumers in a much more targeted fashion than ever before possible.

When it comes to targeting, we're not just talking about demographic and interest information here. What if Facebook could deliver real-time ads based on the conversations its users are having when they're having them? According to AdAge, it is experimenting with precisely that.

The appeal to marketers is as powerful as it is obvious: as AdAge's Irina Slutsky describes, "Users who update their status with 'Mmm, I could go for some pizza tonight,' could get an ad or a coupon from Domino's, Papa John's or Pizza Hut".

If Facebook can manage to connect consumers with businesses in real-time at the right time using data mining, the exorbitant valuations given in secondary markets might not be so crazy.

On paper, Facebook has everything it needs. It not only possesses a massive audience, many of the members of this audience share with Facebook on a regular basis their needs, desires and intentions.

A good number of these needs, desires and intentions are potentially commercial in nature, creating an opportunity for Facebook to deliver relevant advertising at the very moment needs, desires and intentions emerge.

It's far too early, however, to predict success with real-time ads. After all, data mining will never be perfect, and what looks like the right time to hit a consumer with an ad might not be.

For example: a status update about a family member losing his or her house being is probably not the time to pitch an ad for a mortgage, yet conceivably a status update mentioning 'house' could trigger such an ad.

Perhaps more important than the quality of Facebook's data mining: the ads themselves. If Facebook users start to see that their status updates and conversations produce more advertising, some might think twice about what they share and how much they share.

That, in the long run, would probably be harmful as Facebook needs its users to keep sharing.

From this perspective, it's clear that Facebook has a fine line to walk as it looks to exploit more and more of the opportunities that it has created. The world's largest social network is sitting on a proverbial gold mine, but if it has to strip mine it to reach the gold, all of the pretty things on the surface of the mine may disappear.

At the same time, advertisers will also need to tread carefully.Assuming Facebook's real-time ads are eventually rolled out as a polished product, advertisers will need to explore how best to use them.

After all, just because they may be able to participate in a lot of conversations doesn't mean that a lot of the time, they shouldn't sit them out and listen instead.

Patricio Robles

Published 24 March, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2429 more posts from this author

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Peter Gould

Peter Gould, Senior PPC Analyst at Epiphany

I just wrote a blog about this very subject only an hour or so back here: http://www.epiphanysolutions.co.uk/blog/facebook-starts-to-test-related-adverts-and-related-pages/

I'm actually one of those Facebook users being tested (apparently only 1% of users worldwide are), so I've included a couple of screenshots in the above blog if anybody's intrigued to see how the related adverts look.

I'm not trying to steal traffic, promise!..just offer a bit of helpful further info! :)

over 5 years ago

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Kirsty

Like you say, I worry that users will be less likely to engage if they feel they're conversations are being closely monitored. Perhaps if participation is permission based or the offers are really high value similar to the 'daily deals' model...

over 5 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Peter,

Thanks for posting the screenshots. Good stuff! I'm sure a lot of people will be interested in these ads.

over 5 years ago

Peter Gould

Peter Gould, Senior PPC Analyst at Epiphany

No problem Patricio - thought it might be helpful to offer some real screenshot examples that I encountered myself to show exactly how these new types of ad units target users.

I look forward to seeing these rolled out to all users and just how Facebook will report to advertisers specific clicks/interactions from these types of adverts compared to the traditional demographically targeted versions.

over 5 years ago

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Andy Hopkinson, Industrial Placement - Marketing Communications at Mercedes-Benz UK

Cheers for the screenshots Peter.

In my opinion I think real-time ads are needed in order for relevance to be put back into advertising.

The more personalised and relevant the ad, the more effective. It seems logical for Social Media to be used in this way, but as you've said they are treading on a fine line as this could easily be seen as 'online stalking'.

Will be interesting to see how this progresses!

over 5 years ago

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Renate @renate888

If they systems can recognise semantic word combinations then it could possibly be more precise and avoid inappropriate display.

My only question is- how they are going to favour the brand adverts? Following to their example, if I want pizza, they will provide me with Domino's ad. But what if both brands- Domino's and Pizza Hut have opted in for the same service? Are they going to apply randomised system?

Anyway, i will be following this with a great interest. Thank you for the blog, Patricio.

over 5 years ago

Peter Gould

Peter Gould, Senior PPC Analyst at Epiphany

Andy - That's a good point. Although the majority of us in the industry will realise that it's just an algorithm targeting us on a status by status basis based on individual keywords picked up, the wider public may see it as another 'attempt' by Facebook to steal our data, so they'll have to be very careful.

Renate - Another great point. I'm really keen to learn firstly how exactly the ads are targeted (and if advertisers have any influence over which keywords generate an impression for a related advert), and then secondly, how it's determined which brand gets first preference. I can only assume at present it runs off the existing auction-based model where if an advertiser targets any user who says they like 'pizza', they'll also show for a related ad when 'pizza' is used in a status or wall post, and those with the highest bid win.

over 5 years ago

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MissyGirl

Didn't Gmail users have the same debate when the service started delivering text ads that were related to the content of emails? How is this different?

over 5 years ago

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Andy Hopkinson, Industrial Placement - Marketing Communications at Mercedes-Benz UK

Your right Peter, as long as Facebook can find a non-tech way of explaining that this does not effect privacy, then it will be a great step forward for advertising.

I guess the problems they have is that the press and the majority of people are already wary of privacy issues within Facebook and may not completely trust them.

over 5 years ago

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Rich

@ Renate

Whoever has the highest revenue potential.

Probably based on a combination of the CPC/CPM they are willing to pay and the historical CTR on their ads.

over 5 years ago

Philippa Gamse

Philippa Gamse, Adjunct Professor at Hult International Business School

I have the Ad blocker plugin for Google Chrome browser, and I don't see any ads on Facebook (or any Adwords, which amuses me somewhat). Does anyone know the number of users who have ad blocking enabled? If people perceive real-time ads as stalking, do you think this will increase?

over 5 years ago

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kevin v.

Definitely will be looking forward to real time ads.. I think it will change the whole facebook advertising platform to a whole new level.

over 5 years ago

Carlton Jefferis

Carlton Jefferis, CEO & Founder at Gettus!

This whole topic about how Facebook will maximise revenues (and presumably justify valuation) is fascinating. There are surely few other companies sitting on such a wealth of data. Probably only Google can claim to have more data although even that might not be so rich/granular, likely just greater volume.

The trouble is Facebook never really set out their business model upfront (did they have one?!) so users' expectation levels have never been set to welcome advertising in the way they're being exposed to now. FB have developed new ways to earn revenues as they go, upsetting people along the way with endless UI changes and privacy issues. These new advertising techniques (including Sponsored Stories) just compound the effect. I noticed FB now provides ways to turn off a bunch of ad stuff in the 'Facebook Ads' section of your account. It's here in case anyone's interested: http://www.facebook.com/editaccount.php?ads

Obviously Facebook is a free service and so the argument is that users should expect advertising. But even so, they didn't sign up to FB for advertising, they signed up for a way to share their photos and status with their friends and family. How many of these users will stand for the kind of targeting that's being trialled? Is it really beneficial to the user? Will usage/users drop off? Patricio hits the nail squarely on the head with this paragraph:

"If Facebook users start to see that their status updates and conversations produce more advertising, some might think twice about what they share and how much they share."

How frustrating to be sitting on possibly the best data in the world but with massive issues leveraging its enormous value in a way that doesn't upset customers. Shoehorning a business model or two into the product could be a bumpy ride in perpetuity.

over 5 years ago

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