An analyst said the ad product wouldn’t generate enough revenue for investors.
Facebook is testing a feature that lets people share ads seen on another website back to Facebook, the company said yesterday. But one analyst questioned whether the new tested ad product would generate enough revenue to warrant investing in the social media firm.
In a research note published today, Rory Mayer, an analyst with Capstone Investments, noted a Buzzfeed story sponsored by Hidden Valley Ranch and shared on Facebook. Mayer wrote that the ads look similar to Facebook's regular sponsored stories, newsfeed posts with subtle branding. When users click on the post, they are taken to the sponsored content on the original website.
Facebook refused to comment beyond confirming that it was doing a small test with a select group of marketers - which implies that this is an extension of Facebook's existing ad offerings, rather than a new tool for publishers.
BuzzFeed refused comment. The site's technology measures the viral rank of content around the web and dynamically promotes the most engaging to its home page and verticals. In 2010, it introduced advertorial-type content, such as "Who Wins in 'Clash of the Condiments?,'" sponsored by Hidden Valley Ranch - and one of the pieces of content that's appeared in Facebook newsfeeds with the company's branding.
BuzzFeed gained permission to incorporate Facebook's social plugin for sharing these advertorials back to Facebook last fall, and the share button has been featured on sponsored stories, enabling them to appear in users' newsfeeds.
The innovation seems to be the tagline on the Facebook post saying, "Via Hidden Valley Ranch on BuzzFeed" - which is good for BuzzFeed, as well as Hidden Valley Ranch.
Reached by telephone, Mayer said it was too early to discuss the test. In his research note, he wrote, "… accelerated revenue growth at Facebook in 2012/2013 is unlikely unless it releases better premium ad products. If officially launched, this unit could be a step in the right direction, but the revenue potential is less than $300M/year according to our estimates."
Participating publishers would receive additional traffic, while Facebook would likely charge for the referrals on a modest cost-per-click basis, he wrote.
But Facebook could charge more for the insight it has into users' behavior, according to Tom Rikert, director of product management for Wildfire, a social media marketing platform. "To date, publishers haven't had much information available to them from Facebook; it's been a closed system. While Facebook allows you to embed social plugins, it's a mini walled garden on your own site," he said.
It's unclear whether this test would extend to display ads or whether it's merely an enhancement to advertorial, sponsored-story type content. If a site visitor shared a display ad to his Facebook newsfeed, friends who clicked on the newsfeed item could be sent back to the publisher's content associated with the ad.
In any case, Rikert thinks Facebook could provide a lot of value to publishers by sharing information on, for example, who were the most influential users driving traffic from Facebook back to the content site.
"Facebook will get a lot of interesting numbers on CTRs, viral sharing and downstream conversions," Rikert said. "This will help build a case when they do want to do third-party ad units on publisher sites."
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Susan Kuchinskas has covered interactive advertising since its invention. The former staff writer for Adweek, Business 2.0, and M-Business covers technology, business and culture from Berkeley, CA.
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Wednesday, July 23, 2014