Facebook Really Does Make Money

Thursday, August 23rd, 2007 by Jordan McCollum

Facebook Really Does Make Money

Aside from “Are you on Facebook?”, it seems like everyone’s favorite question about the latest social networking phenomenon is “But how are they making money?” Today the Wall Street Journal answers that question for us: targeted advertising.

The WSJ writes:

Social-networking Web site Facebook Inc. is quietly working on a new advertising system that would let marketers target users with ads based on the massive amounts of information people reveal on the site about themselves. . . .

The new service would let advertisers visit a Web site to choose a much wider array of characteristics for the users who should see their ads — based not only on age, gender and location, but also on details such as favorite activities and preferred music, people familiar with the matter say. Facebook would use its technology to point the ads to the selected groups of people without exposing their personal information to the advertisers.

This new breed of ads would be displayed as part of each user’s News Feed. What, like, these ads that I’ve been seeing for months (only, y’know, relevant)?
Facebook News Feed ad

Now, of course, targeted advertising on Facebook is sure to have its detractors, just as some people who claimed that YouTube’s new InVideo ads aren’t relevant to their viewers (even though they can be targeted by age, gender, location, genre, interest and day part) or are a huge step backwards (even though they’re miles better than pre- or postroll and only interrupt the video for 10 seconds).

To Facebook (and YouTube) advertising detractors I say: Get over it. The fact of the matter is that users of these sites receive quite a bit of benefit from these sites—for free. Facebook’s creators and investors aren’t exactly philanthropists—they’re not spending millions of dollars to make sure you and your friends can plan teh beast partay EVAR!!!1! Advertising is what it takes to bring users a free site without running its creators into bankruptcy (and if they make a buck—hey, we all have to eat).

Some would also claim that using the information which users freely and openly disclose to Facebook (and its entire gated community of potential identity thieves and perverts) as leverage for advertisers is an invasion of privacy. (Even though, as the WSJ says, “Facebook plans to protect its users’ privacy and possibly give them an option to keep certain information completely private.”) The point of targeted ads is to show you ads that you might actually be interested in. There’s no benefit to advertising on Facebook if they can’t provide their advertisers with a “prequalified” audience.

If you don’t want to receive targeted advertising you can a.) provide no personal information in your profile (gender, age, location, interests, etc.) and b.) settle for receiving completely irrelevant ads. Because either way, you’re getting the advertising.

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9 comments on “Facebook Really Does Make Money”

Eduardo Fenili Says:

August 23rd, 2007 at 3:07 pm

Sounds like a decent plan to get quality advertising spots. I would much rather have ads that were picked for me than a random one.

It does beg the question about how much information you hand out on the internet. There is a whole thing now about controlling your online image. Businesses Googling people before hire or interview etc etc.

Always gotta be careful if you care so much about that kinda stuff…everything is there to view, private or not.
Dave Says:

August 23rd, 2007 at 4:36 pm

The importance of online communities cannot be discounted for business. Companies can reach out to directly targeted audiences and track results with greater accuracy then any other media. The importance extends beyond business as well, the main example right now would be the 2008 election.

Candidates are utilizing facebook, myspace, youtube, etc to leverage their positions and expose weaknesses of rivals. An interesting study was done by an Internet consulting company to try and quantify how candidates can leverage Internet media through marketing, I encourage you to check it out: http://www.spartaninternet.com/2008
Terry Reeves - Nashville SEO Consultant Says:

August 24th, 2007 at 10:14 am

It’s about time. Or maybe it is just in time. I do know that many advertisers have begged for more options in their targeting and ad options. What good is an audience of millions if you can’t return a profit on that investment?
Drew Stauffer Says:

August 24th, 2007 at 11:32 am

It would be nice if you could choose to either have ads or no ads at all, but I guess their going to shove them down your throat either way.
Music Software Says:

August 24th, 2007 at 2:38 pm

Facebook is a great service. The owners have every right to monetize the site. I wonder how many members it would have if it were charged. Its ok to see adverts (that too targeted) in return for a great free service. No one should be complaining here.
Kristen Says:

August 27th, 2007 at 10:37 am

I totally agree with Music Software. If I owned Facebook and unfortunately I don’t, I would definitely use the targeted ad approach. Why wouldn’t you? It’s a great tool but after all, they want to make money too.
William Says:

August 28th, 2007 at 10:23 am

Facebook makes money for third-party plugin developers.
Laura Says:

October 4th, 2008 at 6:49 pm

I’ve just started seeing success with Facebook. Facebook Cash Flow made me realise how easy it is to make money on Facebook. It always seems so easy when you know how to do it lol
John Says:

May 31st, 2009 at 10:03 am

I realize this is an old blog post, but that was a bit of a rant, no? And based largely on unproven assumptions about how the world works. For example, you assume that ads targeting people based on age, location and hobby are actually going to be relevant to them. Really? Will a 23-year-old student who listens to alt-music in Seattle be interested in that targeted Playstation ad? Is there something about that person that just cries out, “I REALLY like playstations!!!”. No. The ads are still targeting AVERAGED sub-populations, just smaller sub-populations than before. You call that an advance? I call it an illusion.

You also tell us that in-video ads are not a step backward, but you don't offer any support for that argument. I maintain that they are a step backward because YouTube (for example) managed to make hefty profits before instituting these ad schemes. It just later chose to annoy users a bit for some extra cash. Really clever business model there. Especially in the face of all the open content websites that are springing up (and with which YouTube shares an ancestry – hence the step backward).

Ads can be effective means of generating website revenue. But they are just one of many possibilities, and I don't think they will win the day. For instance, I don't see ads anywhere online because my browser's adblocker gets rid of them. So for the advertiser and the website, I do not exist. Good luck changing that.

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