Facebook's New Ad System

Back in July I theorized about a Facebook ad network which enabled advertisers to target their ads based on user profile data. According to the Wall Street Journal this morning, that ad network is not that far away. Supposedly, Facebook plans on launching an ad network later this fall.

The new service would let advertisers visit a Web site to choose a much wider array of characteristics for the users who should see their ads — based not only on age, gender and location, but also on details such as favorite activities and preferred music, people familiar with the matter say. Facebook would use its technology to point the ads to the selected groups of people without exposing their personal information to the advertisers.

These ads would show up differently than the banner ads and boxed flyers that appear on the borders of Facebook pages, say people familiar with the plan. Instead, they would be interspersed with items on the “news feed,” which is a running list of short updates on the activities of a user’s Facebook friends. In addition, the ads would show up on Facebook pages that feature services provided by other companies, one person says.

Facebook already has some targeted ads via their news feed as leaked last month. The main difference this time around is that “Facebook would use an automated system to process transactions instead of requiring advertisers to work with a Facebook representative.” Does this sound familiar? Facebook is about to take Google head on as they prepare to launch an adwords competitor.

Every single social network is going to be forced to develop similar systems when Facebook launches. Just as Yahoo was forced to build their moderately successful Panama system when Google AdWords began to crush them in ad revenue; other social networks will be forced to open their platforms and create ad networks just as Facebook has.

This new ad network shows how Facebook will be able to justify their $10 billion price tag. There is one key challenge to the new ad network though. According to the Wall Street Journal “advertisers say the addictive quality of social networking means users are so busy reading about their friends that they hardly notice display ads and, even if they do, are loath to navigate away to an advertiser’s site.” Many other sources have also expressed horrible click through rates on Facebook. Only time will tell but this is a huge step for Facebook.