How Facebook Will Become The Biggest Ad Network

Facebook’s stock has been taking a beating since their IPO. I’m not an expert on stock trading and I don’t own any Facebook stock, but I think the media and investing world are thinking too much about the short term and what Facebook is today opposed to what it likely is to become in the future.

Primary Revenue Concerns

One of the primary concerns is how Facebook will monetize it’s growing mobile audience. Everyone seems to be really freaked out about the fact that mobile is growing and Facebook hasn’t monetized it well yet. On one hand, people have a point even though Facebook made $180M in revenue from mobile sponsored stories on their first try. On the other hand, isn’t it a pretty good situation that Facebook is the most downloaded application on EVERY mobile platform and is far and away the leader in mobile time spent? That’s a pretty good starting place to figure out how to be a dominant player in mobile.

Another big question on everyone’s mind is if Facebook will be able to build any significant businesses beyond advertising. Since their payments revenue has been primarily gaming-related and that growth has slowed, people are wondering where the growth comes from. Payments could be a solution in areas beyond gaming, and some people are also pointing to their acquisition of Karma as a way to get into mobile/social commerce. Techcrunch also has a run down of revenue-generating ideas, but I wanted to go deeper in an area that I think people are underestimating: A Facebook Ad Network.

The Birth of an Ad Network

The concept of a Facebook Ad Network is not a new one. People have been bringing up that idea since they launched their developer platform in 2008, and they’ve even recently started testing running ads purchased through Facebook’s ad interface on Zynga.com.

Running socially-powered rectangle ads on the right rail of Zynga.com is just scratching the surface, and is only part of what Facebook could do as an ad network.

First, Facebook can offer what they are doing on Zynga.com to every other web publisher easily since almost every quality publisher uses Facebook’s platform already for authentication. Since that user data is already there, Facebook can do the same targeting they do on Facebook itself.

Why would publishers take their ads you ask? They are visually more pleasing than Google’s Adsense text ads, since they are not standard IAB shapes they probably get better click-through rates, and as social ad targeting continues to improve it’s possible that the CPM they can earn would be higher than other alternatives.

Taking it to Mobile

Even though launching the full web ad network of Facebook’s standard ads would be huge by itself, Facebook also has the majority of quality mobile applications using Facebook for authentication as well. Additionally, Facebook’s new mobile sponsored stories ad unit is showing great results so far in Facebook’s mobile app.

Since most quality mobile apps contain some kind of newsfeed similar to Facebook’s, Facebook could extend their mobile sponsored stories to the feeds of other mobile applications. They also have a new non-social ad unit that allows for “appvertising” where other application developers can offer their app for download. It makes perfect sense for Facebook to extend this to the other mobile applications using Facebook’s authentication.

Mobile is exploding, and as it continues to grow Facebook can easily become the largest mobile ad network very quickly.

Bigger Than Adsense?

Facebook is still a young company. They’ve also only been serious about monetization for a couple of years. Many people have pointed to the fact that Google at the same age was ahead of Facebook in these efforts. That’s fine, and it really doesn’t have any impact on how big Facebook’s ad network can become. Google needed to acquire Applied Semantics to create Adsense, and it’s possible that Facebook could make an acquisition that also jumpstart their ad network efforts in powerful ways.

Even if they don’t acquire anyone and do it on their own, the combination of Facebook’s massive web ad network potential with the possibility of a huge mobile ad network even without a ton of innovation leads me to believe they could challenge Adsense for the largest ad network.

The one thing they have working against them is that Adsense really benefits from having advertisers who are really primarily interested in advertising on Google search results also extending their ads into the Adsense network. Is advertising on Facebook’s owned and operated site itself going to bring in the same type of demand?

Probably not. However, Adsense is not a very effective form of advertising on mobile devices. If Facebook is the one to crack mobile feed advertising and bring other innovations to advertising on mobile, they’ve got a shot at overtaking Google’s network.

What’s your take? Can Facebook become the biggest ad network on the web and mobile?

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