Facebook's Headaches for Google: Part II

I've previously wrote about how Facebook is competing with Google, and it doesn't seem to be stopping. This time from a different angle.

The way this is being accentuated is by the two different types of advertising offered by Facebook; "marketplace ads" and "premium ads".

Marketplace Ads are basically the ads that anyone can run on Facebook, simply by going to the advertising section, posting some ads, and entering payment information. The great thing about this is that it is, similar to Google, catering for the long tail of advertisers. Global companies with huge budgets, compete with mom-and-pop advertisers running campaigns of $10 / month. This is similar to Google's philosophy of creating a democratic utopia in advertising. Everyone should be given the same tools, and access to the same information, which improves the efficiency of, and increases the number of advertisers willing to compete in the largest ad auction on the web.

Premium Ads is where things become different. These ads are run by Facebook, through agencies (a segment in the market Google never had in its equation when they created AdWords). Google treats its platform as an open system where users or agencies are free to use it in any way they want. This has really disrupted the traditional business model of media agencies who struggle to find a viable way of making money out of a system that doesn't give them commissions, is completely transparent, and needs daily monitoring and updating.

Facebook is giving these premium spots only to agencies and to campaigns that run a minimum of $10,000 / month (or at least in my region). These ads are run in the traditional way (IO, booking order, etc..) and are managed by Facebook employees.

Guaranteed placement: part of this offering is that these ads don't go into an auction, and appear on the home page of Facebook, which is the first page a user sees when they log in. The agency books a certain number of impressions, and they get these impressions.

Commissions: to make things worse, these campaigns include a commission for media agencies, which immediately makes advertising on Facebook a sweet option for agencies, who get to talk the language they are used to; premium placement, large audience, the big boys get better treatment, etc...

Demographics: another aspect of Facebook that make it very easy for agencies to deal with. Keywords and interest-based targeting, although much more effective, are still not that easy to grasp due to the extreme fragmentation they create, and necessitating campaigns to become more geared to results and reponse, as opposed to branding, whatever that may be.

Facebook is now the hot thing, they give agencies commissions and premium guaranteed placement, and provide the most accurate demographics any media has ever dreamed of having. This will cause a bigger headache for Google clearly.

From an ecosystem perspective, what this does, is that it widens the gap between agencies and regular advertisers, and gives them an unfair advantage. If they would have kept the same model, without favoring the agencies, they would have made the whole online advertising ecosystem a much more efficient and effective place to advertise on. They decided to go for the business objective. Time will tell which model will win.

How Facebook is Causing Big Headaches for Google

Emerging as one of the biggest destinations online, Facebook is not only gaining more traffic and money, it is beginning to disturb Google in a very deep way. This analysis is definitely not comprehensive, but aims at evaluating some of the most important activities an online marketer engages in and tries to achieve.

- Community Building:

A very important goal of any website or brand, is to build a community which is basically a group of people who love the brand/site use/buy it frequently, love to talk about it and visit it often. This is done through collecting users' email adresses and getting their permission to receive emails from the site. The user comes to the site, browses, and if they like it they submit their email to 'join' the site. This can be a simple 'give us your email' box or as part of a registration or purchase process.

The right way is to verify these email addresses, by having users click on a confirmation link that they receive (which hopefully doesn't go to their junk folder!)

Every step of the way, you are loosing people, from the form you are using, to the registration steps, to the confirmation email, a certain percentage of users is being lost.

All of these come with a lot of costs; development, hosting, maintenance, design, etc...

- Keeping in Touch:

After you have gone through the painful process of creating a community, you will have to go through the process of maintaining it. This is done by sending out regular updates, emails, tutorials, freebies, offers, and whatever you believe might help you improve that community. This of course comes with a cost, and a lot of effort. The cost of cleaning up your list, maintaining it, and sending emails. The larger your community the more cost is involved naturally. Many companies exist only to help you send emails and manage your community.

AdWords is one the most cost-effective ways of driving relevant traffic and building the community, and you can easily target the right people and optimize for the traffic that converts and becomes part of your community. But AdWords can only help in driving traffic and can help you identify the right traffic.

On your Facebook fan page, and all the ugly processes and operations you have go through are summarized in one click.


And every status update you do is sent out to all the fans. This functions like an email broadcasting tool, and it is very similar in nature. When we get emails, we only see the subject and the sender. If interested, we click through to read the full story. The same happens with a status update, your fans see the source and see the title. Actually, they see more than a title, because the status bar has more space, and if you have links the images on the destination page will be extracted for you to make it more appealing to your audience.

Not only that, any action that any user engages in with your fan page is broadcast to all their friends. When someone registers or comments on your site, in contrast, nobody knows.

- Long Tail:

The model Facebook is adopting is similar to Google's in terms of addressing the needs of all kinds and sizes of advertisers. A dry cleaner with a monthly budget of $20 can advertise on Facebook, (as well as a multi billion dollar company) and when you have millions of these small advertisers, it amounts to a lot of revenue.

The problem is that Google doesn't have a social platform with which they might hope to compete with Facebook.

What Google can do with this situation is try and get more Facebook developers on board to include AdSense ads in their applications, which they are doing, so they can get a piece of that pie.


Criticizing Google. Does Anyone Dare

Apparently Ken Auletta dares, and with very precise and detailed observations on the company's weaknesses, contradictions, and lack of human touch. It wasn't a negative talk, but well balanced, and based on deep analysis, citing actual conversations with the founders and top management. He was introduced by Google's CEO, Eric Schmidt, who also mentioned how detailed Ken was in his research and reporting.
It's refreshing to see something negative about Google, calling them 'cold engineers', as opposed to the Microsoft people who were labeled 'cold businessmen'.
The weaknesses and opportunities of Google are very important to me also, both as a fan of the company, and as someone who's work relies mostly on their products.
The disruptive force of the company was discussed and its effect on several industries, especially with the 'everything for free' model. Interestingly, Ken says that he doesn't have an answer to the new business challenges posed by this model, and that's a very tough question.
A very good talk and should be a wake-up call for their engineers. Maybe they'll get to their senses one day and hire some designers!

Google Buys Doubleclick

Another whopping announcement by the (search?/advertising?) giant. They are firing toward more and more enriching partnerships and innovations in newer fields of advertising.
They are now beta-testing their radio advertising, which is supposed to be powered by better reporting capabilities for advertisers. At the same time, they are also testing their cost-per-action advertising model.
Now, they are partnering with Doubleclick, which has on of the most extensive databases of online advertisers, and very powerful targeting and reporting tools and metrics. They were even pressured after partnering with Abacus Direct for fears of abusing their combined data.
The main theme in Google's announcement, was the integration of search and display advertising. Doubleclick seems to be the master of banners and the more visual ads, and as we know Google mastered what they pioneered, which is mainly search, and eventually contextual advertising.
This move is supposed to prove useful for advertisers who will have access to better performance measures, and improved tools to manage their campaigns. Publishers will probably have more variety and relevance in the advertising options available for them.
A fast webcast was made today where the top executives of both companies summarized their decisions, and answered some questions.
Although the deal was signed, the total integration and finalization is supposed to take place by the end of this year. Partly, due to some regulatory reasons, and making sure they comply with all antitrust laws and regulations, which is not yet final by the way.
Google was not the only bidder for this company, and some other giants were also bidding, actually the giants, according to Slashdot. Yahoo! and Microsoft were the main players, but Google seems to be the coming undisputed giant of all forms of advertising, since these two lag way behind Google in their search and advertising programs.
Asked why this was the timing for the deal, and not before, Eric Schmidt CEO of Google said that they simply underestimated the size of the display ad business, and realized the great opportunities it promised.
By the way, this is the highest amount that Google paid for a company, and they paid in cold hard cash, $3.1 Billion!