Originally Published 2007-09-24 17:14:47
Facebook Flyers Pro is a new service that went live last week. I saw my first flyer ad today. It was one of those grainy animated gif advertising a webcam service. There was some girl on it who didn't really strike me as appealing.
But my dissatisfaction with sex-based ads on the internet isn't the news. There were no Press Releases posted, not a lot of blogosphere buzz (although mashable beat me to it by a week -- must be something about actually focusing on news, eh?), and definitely nothing on the Facebook home page -- either pre- or post-login.
Flyers Basic is a CPM (short for Cost Per Thousand -- "M" is the roman numeral for thousand) based model. That is, Basic is based on impressions. It is sold in chunks of 5K, or $10 per buy. There's no obvious discount pricing published. I believe this has been around for awhile, however unpublicized it is.
The PPC/CPC (Pay Per Click or Cost Per Click -- they are interchangeable in this context) ad network is the interesting part. It's modeled after the granddaddy of PPC advertising, Google AdWords. Ads start at a penny a click, so throwing a few dollars at the system to see what sticks isn't a really costly endeavor. It's auction-style, so if there is competition for your keywords -- which are not free-form, like Google AdWords, but instead based on the existing content in user profiles -- you'll either pay more per click or not have your ads shown.
I'm running some test ad campaigns myself right now. If they are a dismal failure, I'll let you know. If they are amazingly successful, well, I might just keep that little detail under my hat for a little while. ;-)
The Economics of Not Outsourcing the Ad Platform
An interesting question from a business perspective is: how come MySpace didn't do this? Myspace's approach was, instead, to court the big search engines for a big cash infusion. They went ahead and got a $75 million dollar per quarter guaranteed minimum AdSense payout from google for exclusivity rights on search. Yes, that's right, $900 million over three years. (Which, incidentally, means you can put a targeted ad up on MySpace through AdWords. Just start a "Site Targeted" campaign and enter myspace.com when prompted. I haven't found the results to be phenomenal there, for what it's worth, but I've only done some relatively broad testing.)
So, does this mean that Facebook values the ad network at $300 million per year? Well, let's do some quick shoot-from-the-hip math.
Compete says that facebook is currently receiving north of 27 million monthly unique visitors currently, who are generating 350 million visits. That means that every visitor, in aggregate, is visiting just shy of 13 times per month (350/27). The traffic has been rising dramatically, of course, so this is a somewhat optimistic number. Nine months ago it was 10 million visitors and 140 million visits. So let's use a nice round number of 300 million visits. Given the growth path, I think that's actually pretty conservative. All we're assuming is that the network doesn't grow at all and the current user base continues their usage patterns.
Now let's take a look at the pages per visit. Compete shows an average over the last nine months of about 40. Yes, that's really friggin' high. Smart Guy groupies only stay for 9-10 page views at the most. The average is actually somewhere around 4. You definitely have to give it up to social networking as a kick-ass way of creating user stickiness. It's really quite amazing.
Okay, so we have 300 million visits, who are generating create 12 billion page views. Assuming one impression per page, a click-through rate of 1 out of every five thousand, and an average click price of ten cents, we have the following statistics (all are per month where applicable):
- 300 Million Visits
- 40 Impressions Per Visit
- .02% CTR
- $0.10 per click
...which gives us, when we multiply all the figures together, a conservative monthly gross of 24 million greenbacks. Mind you, both the CTR and click prices are conservative, which you're pretty well aware of if you're on either side of the AdWords/AdSense food chain.
As luck would have it, if we use the Facebook Flyers Basic program, with its CPM cost of $2, as a metric instead, we get the same result. The math is (12 billion impressions / 1000 impressions) * $2 per CPM. That's $24 million a month.
So Why Do it Themselves?
Well, the powers that be at Facebook simply did this analysis and came up with better numbers. And, indeed, if you adjust any of the numbers upwards just a bit, you come up with much more favorable financials. Use the August numbers from Compete, for example, instead of my conservative rounded-down estimate, and the the total impressions jumps from 12 billion to 14 billion.
Or, if I substitute in numbers from my own AdWords campaigns (which I monitor closely to keep costs in check), I come up with a CTR of 0.05% and a CPC (cost per click) of 21 cents. That's an instant quadrupling (and then some) of our gross sales figure.
It's a hard call, because the Google/MySpace deal undoubtedly had the same upside. Remember that the $75 million a quarter was just a minimum payment.
I think that, in the end, it's a question of culture. Facebook has prided itself on staying independent (and, indeed, reportedly turned down an offer from Yahoo somewhere north of $750 million almost 18 months ago), and maintaining a degree of control over the user experience. Whether this is good or bad remains to be seen (who's ego will we read about in coming years?), but so far, I'm incredibly impressed with Facebook both from an entrepreneurial perspective and as an end user.
How are you using Facebook? Have you found profits through it?
On 2007-09-24 20:47:02 Patrick said:
Good read, thanks.
On 2007-09-25 18:51:22 Johnny Fuery said:
That's remarkably close to spam. But I'll leave it for now.
What did you like about it? :-)
On 2007-09-26 22:48:29 Billy Crawl said:
Thanks for the very informative post! I didn't know that Facebook earn that much through network ads... Thanks again for the insights!
On 2007-09-28 13:44:07 Goyin said:
Facebook lost face with me when they opened to the public. It leaves a void in the market for college focused social media which doesn't appear to be filled yet.
On 2007-09-28 14:29:16 Enterprise Feedback Management said:
I loved all the numbers you provided. The growth rate and high number of page views is awesome. I think in the end Facebook prides itself on being self contained, and in a way this has helped them keep their purity. Also in response to goyin, I think it's impressive that Facebook was able to go public without becoming a cyber space trash heap like Myspace.
On 2007-09-28 14:49:19 Johnny Fuery said:
Facebook is not a public company.
On 2007-10-01 11:14:21 Jesse said:
I agree, I wish it stayed college only. I also hate all the new annoying apps. SOme are okay, but so many morons flood their profiles with them that it starts looking "myspace-y"
On 2007-10-30 09:03:42 Ad CTR On Social Networking Sites « Branding Me said:
[...] For a great breakdown/educated guess as to what value Facebook saw in adding a CPM/CPC advertising module on profile pages, head over to the smart guy’s blog. [...]
On 2008-03-24 06:47:30 araba kiralama said:
Facebook is not a public company.
On 2008-06-23 09:19:38 ek gelir sitesi said:
any website that has more than million unique visitors a day is like a money maker no matter what. in the internet there is only hosting and server fees that you are paying and that should be huge for facebook but as a marketing platform it is not hard to tell they are earning huge money.
as i said before it is only a matter of number of visitors. i wish i had that many visitors to my website as well
On 2008-06-30 03:17:19 luxury hunter said:
I'm using facebook only for friends connections
but, your article switch my mind in commercial mode :)
On 2009-11-21 01:37:59 Glass Queens said:
I would love to buy Facebook ads at 10 or even 21 cents a click. Unfortunately today, in order to get any clicks, the bid has to be at 40 cents or higher.