Investing in Facebook: Hussein Fazal of AdParlor

This week, Inside Facebook asks people who have built businesses on the Facebook platform why they believe in the company. These are the people that are truly invested in Facebook, whether or not they bought stock.

For Part 3 of our series we spoke to Hussein Fazal, co-founder and CEO of AdParlor, which provides Facebook ad services and software to optimize campaigns for clients including Groupon, Digitas and a number of social game companies.

Seeing the potential of Facebook

When Facebook opened its platform to third-party developers in 2007, Fazal was working as a software engineer at Bell Canada. In early 2008, he and a friend Kristaps Ronka decided to try building some Facebook applications in their spare time. Fazal didn’t know what would come of it, but he thought it would be fun.

Fazal built a file-sharing app called My Documents, and Ronka made a treasure hunt app. Even though the apps only had a few hundred users, the two started to look for ways to make money off what they had built. When they couldn’t find a good in-app ad network, they decided to build their own.

“As soon as we started working on the ad network, we realized there was real money to be made given the unfulfilled demand and the rapid growth of Facebook,” Fazal says.

Developing a business idea

Fazal and Ronka initially struggled to get advertisers and publishers on board with AdParlor. If they signed a new advertiser, they wouldn’t have enough publishers to give the advertiser the reach they wanted. If they signed more publishers, they didn’t have enough ad inventory to fill the spaces.

But after “a lot of hustling,” as Fazal says, the company became more established among game developers — including Zynga — and started bringing in six figures a month. When they saw the offer wall space begin to develop, they got into that business as well. The turning point for AdParlor came in early 2010 when an advertiser from China wanted to run a huge campaign to drive users to its app.

“They were looking to spend $1 million as fast as possible,” Fazal says.

AdParlor didn’t have enough banner or offer wall inventory to satisfy the advertiser, so Fazal says he turned to competing networks to serve the ad. It still wasn’t enough volume for the client, so Fazal tried using Facebook’s self-serve tool to run ads directly on the site, rather than within canvas apps. It worked.

“The advertiser called us and told us to shut down the banner network, shut down the offer wall,” Fazal says. “The volume and quality of the Facebook ads was better than everything else we were doing.”

Fazal ended up spending close to $1 million using the basic self-serve marketplace.

“We were like, ‘Holy crap, we should start doing this for everyone!’” Fazal says.

AdParlor began using the Bulk Uploader tool and eventually got access to the Ads API, which was in limited private beta at the time. Within two months, AdParlor built their own platform using the API and it has since focused exclusively on ads within the right hand column of Facebook rather than in apps.

Confidence in Facebook

Fazal believes Facebook is fundamentally different than most websites and services because its power is not just on Facebook.com or its mobile properties, but in the network of information it has on its users.

“I feel every once in a while there’s a big shift on the web,” Fazal says, discussing how Google redefined the space by making it possible for people to find information they couldn’t before. “I feel like Facebook is the same way. There really has been a shift in the Internet and what people do online.”

He says the scale of Facebook is what really proves its value.

“Just go into a Starbucks and look at the laptops,” Fazal says. “It’s is everywhere.”

Future of Facebook

Fazal sees a number of ways it could be integrated into products like social TV, car GPS systems, and recommendation services for music and movies. But as a developer in the advertising business, Fazal would really like to see Facebook launch a display ad network and build a better search engine.

“We’d love to have more inventory,” Fazal says of serving ads off-Facebook. “And we’d love to have intent-based search ads.”

Fazal acknowledges that these are big efforts, and Facebook search in particular could be a long ways off.

“Search is not an easy problem to solve,” Fazal says. “But if everyone already goes to Facebook.com, that’s a legitimate social competitor.”

Read Part 1 with Clara Shih of Hearsay Social
Read Part 2 with John Corpus of Milyoni