This is a guest post from a former CTO who now does tech consulting for other start-up ventures and was briefed on Facebook’s advertising strategy. The story was edited and checked for accuracy by Betabeat.
If you logged onto Facebook yesterday, perhaps you caught a link at the top of the News Feed that read: “About Ads: Ever wonder how Facebook makes money? Get the details.” The answers provided some context on the news that starting in January, Facebook will start integrating a type of ad, called “sponsored stories,” that display your friends faces next to content they have “liked” in larger-sized ads your News Feed mix. “Facebook makes its money from showing you ads,” the company told consumers yesterday and with the ramp up to its spring 2012 IPO, the social network is getting serious about that endeavor.
In what seemed like an unrelated move, in September, Facebook announced a brand new type of profile called Timeline, where your whole personal history is laid out by month-by-month, all the way back to your birth. At the time, Facebook described it to consumers as a chance to: “Share and highlight your most memorable posts, photos and life events on your timeline. This is where you can tell your story from beginning, to middle, to now.” By the end of this year all 800 million plus Facebook profiles will have been converted to this new interface.
What most users don’t know is that the new features being introduced are all centered around increasing the value of Facebook to advertisers, to the point where Facebook representatives have been selling the idea that Timeline is actually about re-conceptualizing users around their consumer preferences, or as they put it, “brands are now an essential part of people’s identities.”
The name itself is cleverly designed to conceal the fact that your profile no longer arranges information chronologically. Yes, things are laid out by year and by month. But, when it comes to what’s displayed to your social circle at any given time, other metrics, including direct payments to Facebook itself, will now influence the ranking and placement of stories. This payola will be a crucial part of the graph rank, the new metric for placement that the social network uses to determine what appears on your profile.
“Graph Rank” is a complex and non-published algorithm, but we know direct payments to Facebook and app/user popularity are important parts of the ranking. The newest thing is no longer on top. There is a rough month-by-month sort, but within the month it’s graph rank, not chronological order, that determines placement.
For advertisers and social app developers, capturing user tastes (which used to be good enough) is now secondary to knowing what users are doing right now. Your reading habits, music tastes, guilty TV pleasures, holiday gift purchases and so forth are part of stream of information from which Facebook wrings profits and a new advertising channel in and of themselves.
Disguising ads as your friends’ updates is being offered up as an antidote to the dismal click-through rates for traditional web advertising. Sponsored stories in your feed and sidebar ads based on your friends’ likes will become ubiquitous. Indeed in marketing materials, Facebook says these new premium ads are 90 percent accurate, compared to the industry average of 35 percent. “When people hear about you [the brand] from friends, they listen.”
Facebook derives its revenue from advertising–an average of $100 million a month since last January. At this point, many understand that the business model revolves around selling the mountains of personal information people post to Facebook. In the ramp up to its IPO, the company is anxious to show better revenue growth.
As the post from Facebook yesterday morning explained, sponsored stories are different from ads in that a user’s name or profile might appear alongside the ad, ”If you’ve liked that business’s page, the story about you liking the page (including your name or profile photo) may be paired with the ad your friends see.” While sponsored stories don’t include additional messaging from the sponsor, businesses pay Facebook to feature posts and activity that mention their brands. In both cases, these are only visible “to friends you’ve already shared this information with.”
How long users will tolerate this is unclear. There’s already a class-action suit pending in California against Facebook for integrating user’s pictures without their permission in advertising based on “Likes.” Many Spotify listeners and Washington Post readers are no doubt regretting listening to that one good song from that otherwise unpardonable band, or clicking on that salaciously titled article, which then appeared on the screens of everyone they know along with their smiling profile picture.
We have reached out to Facebook for comment and will update when we hear back.