Towards the end of the holidays, Facebook users may have noticed that they weren’t seeing any of the banner ads provided by Microsoft. These ads, in fact, often don’t appear on the site anyway, these days. The reason is that Facebook’s own home page advertising features and its performance advertising network have become a lot bigger in recent years.
When Microsoft invested $240 million in Facebook at a $15 billion valuation, back in 2007, the deal was strategic — among other things, Microsoft became the company’s exclusive third-party brand advertising partner. Since then, Microsoft has sold Facebook ad inventory through its online advertising network, for what has been rumored to be around $150 million in annual revenue for Facebook. At one point, it appeared to many people that this was the primary way for Facebook to make money.
Due to Facebook’s successful experimentation with its own advertising efforts, it has apparently become less reliant on Microsoft’s sales. These days, it is quite easy to use Facebook without seeing any form of banner ad. “A technical issue” is why Microsoft’s ads have not been running lately in the US, according to a Facebook spokesperson. “We are working on it. Once it’s resolved, things should be back to normal,” Facebook says.
However, Facebook’s introduction of Pages, ads for Pages and other tightly integrated features, like sponsored events, has helped the company provide value to advertisers in new ways. With these features, advertisers can pay to get in front of users, and by users becoming fans and engaging with the ads, the advertiser gets an ongoing relationship with that user — including the ability to broadcast messages into their News Feed . These features also allow friends to share information about brands with each other. Ads for Pages show you which of your friends are fans of an advertiser’s Page, for example, and when friends interact with a Page, you’ll see stories about that activity on their wall and in their news feed.
In September, after Facebook announced that it had become “free cash flow positive,” sources said that the company’s advertising staff was “beating the shit out of its numbers.” Between our estimates and what we heard, we believed at the time that the company was on track to make well over $550 million in annual revenue. More recent reports have estimated that Facebook is on track to make between $710 million and $1 billion in 2010. And the company has been expanding its virtual currency, which we expect to start generating revenues next year as well.
In other words, Microsoft’s ads have become an increasingly small part of Facebook’s overall financial picture. Regardless of when Microsoft’s ads come back, expect that trend to continue.