Estately founder, Galen Ward, posted a bombastic post on GeekWire today suggesting that he was betting his retirement fund on Facebook stock. GeekWire since added a disclaimer because Galen mentioned in the comments that he was not in fact investing any money in Facebook. The entire basis of the post is around the idea that Facebook will launch a competitor to Adsense, which will result in massive revenue growth for Facebook.
I attempted to post a comment pointing out why this is misguided thinking, but my comment never went live. Below are my thoughts on the challenges Facebook might face in taking on Adsense:
Facebook may launch an Adsense competitor at some point in the future. As a publisher, I’d welcome more competition in that segment of the market. Microsoft’s Ad Center had potential and never panned out because they couldn’t offer the same quality of ads or the same payouts to publishers. Maybe Facebook will represent a real challenger to Adsense. That said, they have a long way to go before they can offer something more compelling for content monetization.
The portion of the market where Google Adsense makes a large percentage of revenue is in the answers space. People are looking for a solution to a problem, they wind up on a website that might have the answer, a related ad appears, they click the ad and leave the site.
Aside from the few times when someone posts a status update asking their Facebook friends for advice, people aren’t in the searching for answers mode on Facebook. Most of the time, Facebook users are in the killing time mode, chatting with friends, looking at photos, playing games, etc.
Galen should understand this better than most people, because Estately has both of these types of users. Estately gets some aspirational folks who are browsing houses, dreaming of something better than what they have. Estately also gets active shoppers who are looking for their next house. To succeed, Estately needs lots of that second category, because the aspirational folks won’t generate enough revenue to matter.
Facebook already has better data about it’s users than Google does, because Facebook users are constantly sharing more data all the time. Google infers things about users based on where they go in Google Chrome, what a few of them share on Google+, and the pages they visit that have Google ad code that feeds Google cookies. Even though Google has less data, at the moment, their ads consistently convert better.
The reason Google ads convert better goes back to the mode people are in when they see them. PPC campaigns in the Adwords space are largely at the point in the sales funnel where someone is ready to take action. Whether that action is filling out a lead form or making a purchase, the person who clicks is ready for the next step. A small percentage of ads on Facebook fall in this same category.
The most successful ads on Facebook target those users who simply want to be entertained and direct them to other pages on Facebook (which also drives up Facebook pageviews). The successful Facebook ads are closer to the top of the marketing funnel in the generating awareness stage.
Facebook is going to have to grow a significant inventory of pageviews in the “take action” segment of the market if it hopes to take on Google Adsense. This could mean they need to compete with Google directly in search. It could also mean they need to guarantee some large publishers a revenue match to get them to switch monetization models. Either option will be expensive and have nothing to do with Facebook’s existing ad inventory.
In the meantime, Google will be continuing to improve their Adsense product, which will continue to maintain or increase the switching cost for publishers who might be tempted to move from Google Adsense to whatever Facebook might offer.
Facebook may be worth betting a retirement fund on, but I wouldn’t base that future success on their ability crush Adsense.