It is customary to divide online advertising into two categories: direct response and brand advertising. I prefer instead to divide it according to the mindset of users: whether or not they are actively looking to purchase something (i.e. they have purchasing intent).*
When users are actively looking to purchase something, they typically go to search engines or e-commerce sites. Through advertising or direct sales, these sites harvest intent. Google and Amazon are the biggest financial beneficiaries of intent harvesting.
When the user is not actively looking to buy something, the goal of an online ad is to generate intent. The intent generation market is still fairly fragmented and will grow rapidly over the next few years as brand advertising increasingly moves online. P&G – which alone spends almost $4B/year on brand advertising – needs to convince the next generation of consumers that Crest is better than Colgate. This is why Google paid such a premium for Doubleclick, Yahoo for Right Media, and Microsoft for aQuantive (MS’s biggest acquisition ever).
In 2003, Google introduced AdSense, a program to syndicate their intent harvesting text ads beyond Google’s main property Google.com. The playbook they followed was: use their popular website to build a critical mass of advertisers; then use that critical mass to run an off-property network that offers the highest payouts to publishers. AdSense became so dominant that competitors like Yahoo quit the syndicated ad business altogether. Today, Google has such a powerful position that they don’t disclose percentage revenue splits to publishers and extract the vast majority of the profits.
It is widely believed that Facebook will soon follow the AdSense playbook by introducing an off-property ad network. They’ll try to use their strong base of advertisers to dominate intent generating ads the way AdSense dominated intent harvesting ads.
But to win the intent generation ad battle, data is as important as a critical mass of advertisers. For intent harvesting, users simply type what they are looking for into a search box. For intent generating ads, you need to use data to make inferences about what might influence the user.
This is what the introduction of the Facebook Like button is all about. Intent generating ads – which mostly means displays ads – have notoriously low click through rates (well below 1%). Attempts to improve these numbers through demographics have basically failed. Many startups are having success using social data to target ads today. But the holy grail for targeting intent generating ads is taste data – which basically means what the user likes. Knowing, for example, that a user liked Avatar is an incredibly useful datapoint for targeting an Avatar 2 ad.
Publishers who adopt Facebook’s Like feature may get more traffic and perhaps a better user experience as a result. But they should hope the intent generation ad market doesn’t end up like the intent harvesting ad market – with one dominant player commanding the lion’s share of the profits.
* Most text ads are about intent harvesting and most display ads are about intent generation, but they are not coreferential distinctions. For example, with techniques like “search retargeting” (you do a Google search for washing machines and the later on another site see a display ad for washing machines), sometimes intent harvesting is delivered through display ads.
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[...] This post was mentioned on Twitter by Mike Butcher, Michael Hussey, chris dixon, Jorge Alegre, Gary Chou and others. Gary Chou said: Totally spot on. RT @cdixon Facebook is about to try to dominate display ads the way Google dominates text ads http://bit.ly/aKs1Iv [...]
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Is the holy grail really taste data? or is it being able to know for any given user (or aggregate group of users) who ends up purchasing, which ads they saw leading up to the purchase?
For example, in Facebook’s new (beta) conversion tracking reports, they separate out conversions (sales/leads/whatever) between people who clicked and then converted as well as people who saw the ad previously, didn’t click, but still converted. See page 8 of this pdf where they talk about “Post-Impression” and “Post-Click” data: http://ads.ak.facebook.com/ads/FacebookAds/ConversionTrackingGuide.pdf
Seems like they are trying to more easily connect the dots between ads shown that people don’t click on, and eventual purchase. (helping advertisers tie an ROI to a previously very difficult to measure thing..aka the old ‘50% of advertising works, we just don’t know which 50%’)
yawn they disrupted doubleclick which is why they are desperate to try and find another lucrative market…. impression ads < Google period
Great article Chris, great summary of online advertising (e.g. whether or not users have purchasing intent).
Its probably obvious to you, but it just dawned on me that Hunch will have huge value in this area. Hunch’s twitter predictor showed how well you can already predict things about people. Presumably this will be very valuable to Hunch (or someone else), in that you can use it to make predictions about users, for example, which advertising would they be most likely act on if shown.
@Noah – that does sound powerful: being able to figure out who purchased because they saw an ad even if they didn’t click, especially if its much later. That sounds like it would really help ads that generate delayed purchase intent, or get triggered later. E.g. “I need ABC, didn’t I just see an ad for that the other day?”
Rate card or fixed CPM pricing is the largest inhibitor to the adoption of display advertising. It completely distorts the relative value equation for the advertiser. Publishers are artificially pricing out a very large and critical long tail opportunity, which Google so effectively used to jumpstart its industry leading advertiser base. Not until accessible, self-service, demand-based advertising channels exist will this market flourish like direct response. Ultimately, everything on the web must somehow approximate the direct response model, even when generating offline sales.
Chris, your posts on intent are helpful in understanding the ad market, please keep them coming.
I’m skeptical Facebook would ever be dominant with Like data. What data they have pales in comparison to what my browser/phone/tv knows about my interests.
Can Google dangle the right carrots so that I give them the privilege to be the arbiter of that data to advertisers? And will they take privacy seriously enough to earn my trust?
[...] the original here: Facebook is about to try to dominate display ads the way Google … // Tags: adsense, dominate-intent, facebook, follow-the-adsense, generating-ads, strong, [...]
It has baffled me for years why Microsoft hasn’t subsidized an adsense competitor.
Chris,
I think you raise some very interesting points about Facebook and Brand advertisers. Agree that brand advertisers are generally interested in upper funnel measures. However marketing objectives are across the entire funnel ( awareness, consideration, brand opinion and intent …among others ) and lack of the ability to target is not the reason most often sited for lack of online spend for display ads. The lack of better and consistent cross platform compatible audience and advertising effectiveness measures are bigger hurdles.
The failure of impressions as currency is demonstrated by the growth in performance based online advertising. It now accounts for more than 60% of all Internet advertising revenue ( Source IAB ) and his risen steadily through the years.
Performance based internet ads will continue to drive the growth because they have less issues with what I will term the “empty” impression ( impressions that are virtually invisible either because the page refreshes very quickly or a host of other issues such as location on the page). A brand advertiser needs to be confident in the quality of the impression: who it was served to, how often and how clearly. The closest example today is online video ads on long form video sites like Hulu. Hulu in stream ads provide higher confidence in delivery quality and as such have been more readily embraced by brand advertisers.
I would actually go further and state that facebook’s increased profiling capabilities are better positioned to increase yield of performance based advertising than brand advertisers.
Better measures. Better accountability. These are the primary drivers.
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The data collected from their Like widget is valuable in two ways. First it is a “user activity” sensor network that associates you with the pages you visit across the Web (outside of Facebook). This activity builds up a profile of implicit interests that says alot about what you /actually/ like. Second by pushing a button on the widget you provide an explicit gesture of your interests, not as high volume as the implicit interests but more directly usable. All of this paints a picture of you and your interests which canbe used to deliver relevant ads.
However, for display ads the context the ad is shown is very important and although Facebook may now start collecting more data from your browsing behavior, they do not have pages that are effective for showing ads – an off-site network would need to be used or created.
The publishers that are unwittingly providing Facebook with this broad set of activity data will probably be the sites Facebook uses to build ther publisher network – but that means they will be charging publishers for the benefits of targeted advertising based on data they took from those publishers in the first place.
Websites should consider wrapping any Facebook widgets in an extra layer of iframes to minimze data leakage, or simply ask to get paid by Facebook for that data.
The challenge, and opportunity with intent generation ads is quantifying it all the way to point of purchase. I contend that showing an ad to someone who Facebook ”likes” Avatar is a waste of ad spend because the person would have seen the film anyways. In fact, i have heard as much from Hollywood execs.
I agree with Eric Gould’s comment that Facebook will reap massive rewards from building it’s off site ad network to serve direct response advertisers and not brand advertisers. So in this respect Chris, i think your assessment is flawed. The tools around interest profiling are much more valuable when used in a quant driven industry that truly knows how to value a click and how to squeeze max value from each impression. Brands on the other hand, have no way to determine the value of an impression or click, and therefore buy ads with little understanding of effectiveness. Seems crazy, but it’s true, and is in large part why digital is still such a tiny part of brand ad spend. This is due to the fact that brand ad dollars are meant to influence off-the-self puchases which are not trackable back to impressions the way direct response ads, which drive online purchase, can.
I agree with your assertion that Facebook will dominate display advertising. Their collection of data is unprecedented in the history of mankind and they will cash-in big with their off-site ad network. The only thing in their way may be regulators declaring them a monopoly. The race is already lost for google, msft or anyone else for that matter who cannot compete with the network effects of the Facebook platform.
However, your claim that they will dominate intent generation ads is premature until some kind of quantification of ad effectiveness to point of sale is invented.
Great blog BTW, keep it up!
Robert Scoble has recently highlighted the issue too and effectively echoed what I’ve been saying for some time; that Facebook is a Chris Anderson ‘Long Tail’ or the 80% of the 80:20 rule. The rich and elegant ‘HEAD’ or 20% is actually outside the platform and is the place where trad media finally converges properly online. This hasn’t happened yet, which is why people like Martin Sorrel at WPP still have a certain disdain for Social Networking in it’s current guise. (and he’s the guy really writing the big cheques…)
Facebook have created a PR catastrophe recently on privacy and it is pure greed and lack of respect for us d**b f**ks (whose content and support have created the company) that should further discourage any decent upstanding brand from going anywhere near Facebook.
Facebook’s behaviour is cheap and so therefore will be its ad base… It’s still just a digital graffiti wall you know… who really wants to advertise next to that?
If it comes down to it – I wonder whether publishers will be smart enough to understand that they are giving Facebook valuable data, and ask for a cut of the advertising – just as google does traffic payments.
I figure in 5 years this whole conversation is moot. Search and display will largely merge into one over time and Google probably still dominates.
Time spent on Facebook is like driving down the highway aimlessly with your friends in a convertible. You might see some billboards – but your main activity has nothing to do with the ads you might see on the billboards along the way.
Time spent with Google is riding in the back of a blacked out SUV to the mall. You don’t see much of the world around you – but you get where you need to go.
As search results become more visual the need to do more display advertising wanes. Sure, Facebook will gererate a lot of $ and profit in the display game – because display ads or brand advertising always goes where the eyeballs are and then buys bulk eyeballs at the lowest CPM possible. Targeting a more qualified set of eyeballs helps but as mentioned already in the comments – only really helps if you can say for sure that the brand advertising led to intent. (Thus couponing!)
[...] This post was mentioned on Twitter by Aladin Single. Aladin Single said: Facebook is about to try to dominate display ads the way Google … http://bit.ly/dboFBy [...]
[...] Dixon, co-founder of Hunch.com, has shared his thoughts and some interesting insight into the two different types of online advertising at [...]
[...] Dixon, co-founder of Hunch.com, has shared his thoughts and some interesting insight into the two different types of online advertising at [...]
[...] Facebook is about to try to dominate display ads the way Google … [...]
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Chris,
This is the most succinct write-up about Facebook’s ambitious ‘Like’-All play I have read so far. There is so much noise about ‘Facebook is going to be big’, ‘Facebook is the next Google, GOOG is the nest MS’ etc.
I like how this cuts to the heart of it. What scares me the most, which is just passingly mentioned, is that we are going to have to re-align our web browsing habits with the ever-changing privacy structures. I w-a-n-t to like The Departed & perhaps also Marty Scorsese, but do I want to tell WB that ‘hey, i have another $15 in my hand for another movie you think i should now go watch’. The answer seems unclear to me right now. They might know enough about me to give me an intelligent suggestion. Somehow, Hunch seems to be somewhere in the middle there. Your Twitter_app was mindblowingly accurate.
For now, I am just going more private than ever before. I feel I am going to sit on the not-so-cool-kids lunch table away from Mark and his crew just cause in this high school I don’t want everybody to know my business.
This is interesting, Chris, but I want to know how Facebook can keep its fiscal house together.
Is this really an environment they can IPO in? Are their revenues high enough to support an IPO of this magnitude?
Why are they continuing to alienate customers by altering the service at such a rapid pace? It’s causing them more PR and customer service issues than they ought to have.
Who will they market the shares to?
Ad money flows into search/display ads only when theres justification for the spend.
This justification requires that the user’s behavior is tracked as far into history as possible.
The race is on to get a single companies cookie into as many users and sites on the web as possible.
Google has the adsense cookie on a ton of sites already and is also planning to become the aggregator of ad networks, as the industry becomes fragmented. http://adsense.blogspot.com/2010/03/google-certified-ad-networks-now.html
Facebook and Twitter need their code on as many sites as possible/ The “like” information is just a benefit for the site installing the code. It would improve their pageviews by recommending “liked” pages to friends of the user. Ex: CNN for facebook and NYtimes for Twitter.
The problem is not around offering the right ad a user, it can be done using previous click behavior of users. Its about justifying the ad spend for an advertiser.
A few things: If Facebook sees the off-fb.com ads as its future, then this is also a tacit admission that on-site “Social Ads” are unlikely to ever monetize much higher than $2/unique/year as it currently stands (compared to Google’s $18).
And regardless of whether you classify “content network” text ads as intent generating or harvesting (I’d argue that Adsense ads have been somewhere in between), the fact is that the context of the state of mind of the user is much more important than anything else.
Given that Adsense has only a fraction of the profitability of Adwords for Google, it stands to reason that Facebook is unlikely to reach Google’s numbers.
Social search might do it, but then it is not really proven yet that people really want social search. Especially if we only assume input from one’s FB social graph, at a mode of 100 friends or so the sample size may simply be too small
(vs. say Twitter where at least people routinely have up to thousands of followers/friends, but where we currently cannot search over just their updates – except through indirect, hackish work-arounds).
[...] harvesting ad market – with one dominant player commanding the lion’s share of the profits." Read more. And, read a rebuttal on Jonathan Mendez' blog [...]
[...] / cdixon.org: Facebook is about to try to dominate display ads the way Google dominates text ads — It is customary to divide online advertising into two categories: direct [...]
[...] Dixon did a great job just recently of telling the story about Google as well as giving his take on Facebook's display [...]
Since Facebook, Google et al have decided my private info is their profit, I no longer buy ANYTHING online.
Oops, y’all pushed me (and many of my friends) too far. Good luck ever luring us back.
Facebook’s ability to infiltrate hundreds of thousands of website via their “Like” button is amazing, and it only continues to grow. Since Facebook is harvesting so much data already with their network, they’re planning to do this on everyone else’s network (community) and I find that very interesting. Like you mentioned, being able to use “taste data” is going to amazing for them. If I like the “Seattle Seahawks” on ESPN — you KNOW that I like the Seahawks and it would be stupid if advertisers selling tickets or memorabilia didn’t want to advertise to me through Facebook. How much more targeted do you get? Anyways, great post — love the thought put behind it.
Great article and great point as seeing the off-Facebook like button as a future tool to optimize brand management display ads.
I just don’t understand why brand advertisers should focus on click. It’s an irrelevant metric to measure intent and notoriety, especially for off-line advertisers.
In the end, it’s a good think that Google eventually finds a great competitor for on-line advertising.
Now I know why I follow you. I like it when I think “That was obvious; why didn’t I think of it sooner?” I already see Zuck explaining “We increased your trafic by 140%, now we’ll increase your ads revenue, without those bizarre link-bating CPM ads that only work if your hard-earned readers leave your site. All that with just adding one simple line of code, juste like for the ‘Like’ button.”
As pointed out by commenters, you’d rather focus your attention on non-fans already, ie. negative targeting, something that Facebook already does in the NewsFeed; actually, you’d rather focus on Friends of fans, that can convince you to accompany them to see Avatar: having their name & pic appear on the ad itself was too much, but targeting Friends of fans with an ad saying how many friends are already member, and showing a preview of the Community page with a mouse over (with the name & pic of your Friends that are members) conveniently above the fold… that’s more like it. Fairly enough to make that 1% click-through rate become a significantly higher Fan-rate without interrupting their navigation.
More interesting, Facebook could infer how many exposures are necessary to reach that engagement, and price Display similarly to CPC, as a share of the final margin, not rat-race bottom prices.
On a related note: that could threaten Hunch.com (or make it a fantastic business partner); I’m not sure you’d be confortable with having that conversation in public, but I’d love to listen to that.
[...] Facebook is about to try to dominate display ads the way Google dominates text ads - Chris Dixon [...]
Interesting take on Ad 4.0 on the net, but still misses bigger picture which is shift from CPM to CPE or cost per engagement. One is reach which is tough place to protect pricing, one is actual purchase and answers the Wanamaker conundrum (“I know that 50% of my ad dollars work, I just don’t know what 50%!) Big issue will be to close the loop. Effectively move from locus (Google, Facebook, Yahoo!) to off site intent generation or to intent harvesting, directly to point of purchase and then track the transaction. Look to bar code scanning on mobile devices as very interesting way to move to next gen pricing engine in advertising, as advertisers become willing to pay a premium on front end of intent generation based on actual executed purchase.
Very interesting stuff on Facebook and how the Open Graph will change the display advertising marketplace. The one company that hasnt been mentioned much is Yahoo! who has been the leader in the display ad market for quite a while now. With Yahoo!’s premium content and all the data from their users that they own, Yahoo! will continue to be unique in the sponsorship opportunities that it offers and the massive amount of data that it has. It will really come down to how Yaho! can successfully extract the data that it owns about its users and better target specific audiences. What are everyone’s thoughts on Yahoo! and how they fit into the picture with Facebook and Google?
[...] This post was mentioned on Twitter by Brandon Hill. Brandon Hill said: Facebook is about to try to dominate display ads the way Google dominates text ads http://ping.fm/KwFzx [...]
I think the key player in both intent harvesting and intent generating ad is the level of Education of the Target Market.
[...] A mon avis ils vont pas se casser la tête, on va avoir droit à un moteur de recherche plutôt standard. Car même si l’indexation par le like remplacera ici les traditionnels robots (bots), les [...]
Facebook impact imminent.
Facebook is pulling on so many strings Google holds; ads, pagerank, news (Google News vs FB News Stream), email/communication – there will be an email app from FB. Maybe next f8. Rumours surfaced already months ago.
BTW Colgate.
If they want to do this accurately, i.e. display the proper ads next to the right pictures, they should look at Milabra — also an NYC based company!
http://www.milabra.com/
[...] tech investor and entrepreneur Chris Dixon posited that Facebook is going to use its web-wide Like button to corner the market on online display ads, [...]
[...] Cdixon revient sur les opportunités majeures que cette fonctionnalité offre à la plateforme [...]
Isn’t consumer spending data ultimately the real holy grail? It goes one step beyond intent and actually tells you what/where people are interested in spending their money…
Obviously, few people are going to be willing to give you their credit card data and so many people have tried to build out compelling value-props to convince you… (Mint < 1M users, Blippy ~ 20K users, etc…) But harvesting intent via the "Like" button or building out a taste-graph really just seems like an easy-to-access proxy for actual spending.
[...] Facebook is about to try to dominate display ads the way Google dominates text ads # / internet / oglašavanje KOMENTARI /0/ DODAJ KOMENTAR [...]
Updated: GigaOm has a great data supporting your case, Chris. On an impression basis, Facebook controls 16% of the online display ad market (which makes sense given Facebook has the largest user base of any site on the web) though Facebook's share of advertising dollars is significantly lower for the reason in my argument below.
And the number of advertisers have 4x'ed in one year (though I bet the majority of these are SMBs): http://gigaom.com/2010/06/02/facebook-advertise...
–
I like this point of view and have a slightly different one. I believe the local ad opportunity is more immediate and directly addressable for Facebook than the branding dollars. The large advertisers spending 500k daily on MySpace and YouTube are looking for massive distribution and home page take overs on a consistent quality traffic base. The Facebook publishing network, or AdSense equivalent, might be able to offer marginally better targeting, but won't command the large CPMs of the customized destination sites.
Here's my argument for Facebook's local opportunity: http://expostfacto.posterous.com/facebooks-loca...
Robert Scoble has recently highlighted the issue too and effectively echoed what I've been saying for some time; that Facebook is a Chris Anderson 'Long Tail' or the 80% of the 80:20 rule. The rich and elegant 'HEAD' or 20% is actually outside the platform and is the place where trad media finally converges properly online. This hasn't happened yet, which is why people like Martin Sorrel at WPP still have a certain disdain for Social Networking in it's current guise. (and he's the guy really writing the big cheques…)
Facebook have created a PR catastrophe recently on privacy and it is pure greed and lack of respect for us d**b f**ks (whose content and support have created the company) that should further discourage any decent upstanding brand from going anywhere near Facebook.
Facebook's behaviour is cheap and so therefore will be its ad base… It's still just a digital graffiti wall you know… who really wants to advertise next to that?
Smart observation.
Eric, couldn't agree more with your points and is exactly why I created & filed for patent protection on a platform I developed that provides a compatible audience and increases advertising effectiveness without all the privacy issues that inevitably come from “measurable” activities. If you're interested, I'd love to hear your thoughts on the model and discover new ways to improve it. Ping me back at olzj@msn.com if you want to hear more. Thanks, John
Chris,
The Wanamaker Syndromes only half the problem (no pun intended), there’s still a tremendous amount of waste not being utilized by the technology the internet offers. It’s time to take the concept of advertising to the next level and re-engineer the model for a digital/mobile generation! I have and I’d like to show you how my model not only eliminates the Wanamaker Syndrome and subsequent privacy issues, but empowers the consumer and taps in to something uniquely human, exists in infinite quantity and has unlimited potential. Mark Twain once said, “many a small thing has been made large by the RIGHT kind of advertising” Let me show you how! Interested? Ping me back at olzj@msn.com.
[...] still up for debate. Some thought leaders in the industry seem to think that it’s positioning themselves to become like Google. I’ve said they’re out to eat the internet. Higher Ed has strong obligations to data [...]
[...] Facebook is about to try to dominate display ads the way Google dominates text ads [...]
Great post. Would you say online intent generation is only for the big brands or is this interesting for smaller brands as well (who don't have the budgets to reach the masses)?
And as you probably know, Google did disclose the revshare in the meanwhile: http://adsense.blogspot.com/2010/05/adsense-rev...
[...] still up for debate. Some thought leaders in the industry seem to think that it’s positioning themselves to become like Google. I’ve said they’re out to eat the internet. Higher Ed has strong obligations to data [...]
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[...] Dixon, co-founder of Hunch and prominent east coast angel, had a post on why Facebook could dominate ads–discussing the value of knowing user [...]
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