Facebook Plans To Make Sponsored Stories Self-Serve

Days after Facebook first announced its sponsored stories product, we're hearing that the social network has been actively pitching third-party ad platforms on extending the product through the company's increasingly popular Ads API. That means we could soon see sponsored stories show up as a self-serve product for all advertisers on the site.

Days after Facebook first announced its sponsored stories product, we’re hearing that the company has been actively pitching third-party ad platforms on extending the product through the company’s increasingly popular Ads API. That means we could soon see sponsored stories show up as a self-serve product for all advertisers on the site.

While there has been mixed coverage of sponsored stories, with some even suggesting that this is the return of Beacon, it appears as though the company has very big plans (and hopes) for the product. One of the major features not yet articulated by Facebook is the integration of Open Graph objects into this new product. The idea is that when you like a pair of Nike shoes on Amazon, both Nike and Amazon should be able to pay for that action to be turned into an advertisement. While big brands are part of the initial test, Facebook is hoping for advertisers of all sizes to be able to take advantage of this new ad product.

Facebook’s Retargeting Play

While Facebook hasn’t explicitly stated this, the new sponsored stories are comparable to the retargeting ads that have exploded in popularity in recent months. Don’t understand? Here’s an example of retargeting as described by The New York Times:

The shoes that Julie Matlin recently saw on Zappos.com were kind of cute, or so she thought. But Ms. Matlin wasn’t ready to buy and left the site.

Then the shoes started to follow her everywhere she went online. An ad for those very shoes showed up on the blog TechCrunch. It popped up again on several other blogs and on Twitpic. It was as if Zappos had unleashed a persistent salesman who wouldn’t take no for an answer.

Advertisers love retargeting, as performance is incredibly high. While just about every ad platform is entering the retargeting business, Facebook is just now beginning to enter. Advertisers will be able to target two parties: the user who explicitly liked a specific product and their friends through the new sponsored stories product.

Facebook Goes After Game Developers

While not explicitly told to third-party Facebook advertising providers, one of the most obvious markets for sponsored stories is game developers, one of Facebook’s largest sources of advertising revenue. Recently, Facebook had cut down on many of the communication channels used by developers to acquire new users, shifting instead to the optimization of re-engagement channels, such as homepage bookmarks. The end result is that game developers get more bang for their buck when acquiring new users through Facebook ads.

The longer that they can keep a user, the more likely they will be able to convert that individual into a paying user who purchases virtual goods. Ironically, not only are developers paying for users through Facebook’s ads, but they’re also paying a 30 percent cut on all transactions that go through their system: a tax which will become mandatory beginning in July. It’s a difficult course for Facebook to navigate as they try to avoid leaving developers with a bad taste in their mouths.

On one hand, the new advertisements could see an increase in performance as placing a user’s friends faces in ads tends to accomplish such a goal. However the company is simultaneously optimizing platform communication channels in a way that maximizes revenue Facebook. Completely harming the developers is something they clearly don’t want to do as it will damage a much more significant long-term business, something that Facebook is betting will serve as a significant revenue source.

As such, Facebook has been promising new ways for developers to increase their revenue: frictionless payments and “buy with friends” (something many are calling Facebook’s foray into Groupon territory). The other carrot that Facebook can provide to developers is new communication channels, something Facebook has previously teased but has yet to deliver in any significant way.

The Small Business Play

The most substantial advertising business for Facebook is not developers, though. Instead it’s the company’s self-serve business that is used by countless small businesses. While Facebook’s pages have served as the primary platform for small businesses to promote themselves, the Open Graph will become an increasing marketing channel. By converting all like buttons into objects within Facebook’s advertising system, the company may have developed a more powerful system than many other advertisers: an opt-in retargeting ad platform.

It’s a concept that Facebook has been playing with since the company first announced the Open Graph at a developer garage back in October of 2009. It’s an awkward term which (intentionally or not) confuses many about Facebook’s intentions. Those intentions have now become clear: a global web of “like” buttons that power Facebook’s advertising network. The idea is that in the future you will be able to like anything on your computer, in a video game, walking through the mall, or more, and advertisements will now be able to more effectively target you through your ever expanding personal advertising profile.

It’s an ambitious vision and one that Facebook has been trying to perfect for years, starting with the previously failed Beacon. At the time Facebook stumbled through the creation of an opt-out advertising platform. This time Facebook hopes it has navigated things properly. So far we’ve seen very little backlash over the product, an early signal that Chief Executive Officer Mark Zuckerberg may have successfully pulled off a vision that he previously failed at. With persistence comes great success, and most likely eventual criticism.

While the future of Facebook’s “Sponsored Stories” product is unknown, the company’s ambitions have never been more clear. Now we’ll have to wait and see what advertisers and consumers say about the new advertising product. What do you think of the company’s plans to turn your likes into a comprehensive personal advertising profile?