5 Reasons Facebook Should Buy An Analytics Startup

-Analytics Icon-When I saw an article from Marshall Kirkpatrick the other day about Mark Zuckerberg looking for another company to buy, I immediately thought to myself that Facebook needs to acquire an analytics service. While there are numerous companies that would fit well with Facebook, Mark Zuckerberg has made it clear that he wants to hire for talent. While searching for talent, Facebook should keep their eyes on analytics companies as they’d provide an immense amount of value.

Social Traffic Is Growing, Increased Monetization Opportunity

While Google has long been the primary driver of traffic to most sites, social traffic is increasing dramatically and this form of traffic is much more difficult to monetize. To our site, we’ve seen a doubling in socially referred traffic over the past year as illustrated in the charts below. While we’re only including Facebook and Twitter in our social calculation, Stumble Upon, Digg, other social recommendation engines, and even news aggregators result in “untargeted” traffic. Let me explain briefly.

-2008 to 2009 Referrals-

-2009 to 2010 Referrals-

When you search for something on Google it is a sign of intent. As soon as you click a result, there’s a relatively decent chance that what you were looking for isn’t on that page and you click another link or it was and there’s an appealing link which you want to click. Whatever the reason is for clicking the link, there’s a decent chance that it’s a link that was served up by Google AdSense.

Referral traffic can have high click through rates especially if the links being served up have been targeted effectively. Search referral traffic can display ads based on the keyword you just searched for, but how about social traffic? If I click on a link my friend posted on Facebook, how would Google figure out which ads to serve to me? Right now they determine what to display based on the content on the page as well as those sponsors who have purchased inventory specifically from that site. Those ads aren’t always targeted directly at me.

Yes, there are various ways to target individuals based on their traffic history, however what if those ads could be targeted based on my profile information? Facebook already serves those ads on their own site, which also happens to be a highly engaging site. However if a user is referred to less engaging site, there’s a greater chance that a highly targeted ad based on personal data will grab their attention.

Improved Measurement Means More Ad Spend

Facebook currently measures all the traffic within their site and the traffic of those pages using Facebook Connect around the web. Internal measurement is currently used to help improve advertising targeting, but it’s no secret that Facebook has ambitions of extending their advertising service beyond the site. With extremely detailed insight about sites around the web, Facebook will be able to help site owners monetize their “social traffic”.

It also means that Facebook will have greater inventory. While many analysts claim that Facebook’s low CPMs are a problem, I’d argue that this is a benefit. When was the last time you were able to generate an extremely targeted ad for less than an untargeted ad? With more inventory Facebook will be able to keep the costs of advertising relatively low in the short-run. The increased reach will increase Facebook’s attractiveness to advertisers.

The bottom line is this: site owners benefit from greater insight and revenue share from Facebook; Facebook gets to dramatically increase their reach.

Existing Tools Are Not Up To Par

Facebook’s internal “Insights” product are useful, however they clearly aren’t up to par. Facebook’s share analytics, for example, is supposed to provide information on links being clicked, but the data hasn’t been working for weeks. It’s great that Facebook is working on improving their data tools but they could easily purchase a company like Clicky and get a team which known how to scale analytics data, all while keeping it real-time.

Deep Profile Insight Available

While an increasing number of websites are supporting Facebook Connect, an even greater percentage have yet to jump on the bandwagon. Despite this, it would be easy to get websites to drop in some JavaScript to view improved analytics. By surfacing more detailed information about visitors coming to a given website (e.g. user interests, gender, age, relationship status, etc) while not disclosing the identity of individual users, Facebook could single-handedly take on companies like Quantcast and Google Analytics.

No only would Facebook be able to tell you the types of people viewing your site as a whole, but they’d also be able to provide deep insight on a per page basis. For example, imagine finding out that one of your articles was viewed by people who were interested in Hockey and Beer, while another page was extremely popular among those who had an affiliation with My Little Pony (perhaps a bad example). The point is that Facebook has the power to surface information beyond the IP address and network that Google Analytics currently provides.

Integration With Share Analytics

While Facebook share analytics may not be functioning at 100 percent currently, there’s no disputing the value of the service. Imagine if Facebook was able to tell you the most popular articles based on page views as well as the number of shares. While not a huge improvement over the deep profile information Facebook has available, it has the potential to help you find your “most viral” content versus just that traffic which is driven by keywords.

This type of insight would help web administrators target content for two purposes: search and social. As a robust analytics package is rolled out, Facebook would single handedly give rise to a greater emphasis on social media optimized content. For example, take one of our articles on AllFacebook. Below is a chart with the referrals for the past month to that specific article. Notice how social traffic (Facebook & StumbleUpon) account for 27 percent of the traffic.

-Article Referral Chart-

Beyond the fact that it came from Facebook, I have no way of knowing how many people shared this content. Combined with share analytics, I’d have more detail and possibly even surface some articles that had more social traffic than search.

Conclusion

Facebook is looking to acquire now and it’s pretty clear what type of company they should acquire to maximize their investment: an analytics company. While there are numerous companies out there that provide different forms of analytics (kontagent, clicky, mixpanel, kissMetrics, refresh analytics, etc), there is a huge opportunity to surface more socially relevant data. Facebook Insights is a great start, however Facebook should have a larger team dedicated to ensuring that deep insight is available to all people who invest in advertising on their site.

It would also of course be a great way for Facebook to find test publishers when they want to scale their advertising beyond Facebook.com. What type of company do you think Facebook should buy? Does it make sense to purchase an analytics firm?