How Much Is Facebook’s News Feed Worth to Advertisers?

Last week, Facebook announced its intention to launch video ads. Almost immediately the web was humming with speculation about what this will mean, both to advertisers and to Facebook users. Here’s what we know so far: the ads will be under 15 seconds long, will initially run without audio (until the sound is initiated by the user), and will come with a frequency cap of one play per day. A video ad on Facebook could go for a daily rate of over $2 million – the rough equivalent of a Super Bowl spot.

Mainstream news outlets have speculated that consumers won’t react well to the sudden appearance of video, but it seems as though Mark Zuckerberg is determined not to annoy Facebook’s users. Meanwhile, analysts are bullish on the prospect of the ads. Morgan Stanley has reported that video units on the social site could generate upwards of $1 billion, and predicted that Facebook could be pulling in some $6.5 billion from video advertising by 2020.

Video ads are just the latest in a long line of ad offerings and enhancements to appear on Facebook in recent years, but these could be particularly critical to Facebook’s growth, because they’re set to be placed within the user’s news feed. According to a recent report by ClickZ, Facebook anticipates that news feed ads will be “the main driver of revenue throughout the remainder of the year.” Ads now make up “5 percent, or one in 20 stories in the news feed,” but with over a million active advertisers, this number’s likely to increase. Recently Facebook’s total ad revenue reached $1.6 billion, which represents an increase of 61 percent over last year.

Video ads aren’t the only change that’s coming to Facebook news feeds. A few months ago, the social network began incorporating targeted ads purchased through its ad exchange, Facebook Exchange (FBX). Previously this method of media buying was only available for ads placed in Facebook’s right-hand rail, but brands can now purchase more prominent news feed placements and benefit from integration into user-generated content.

Through FBX, the news feed ads will be targeted using information about what Facebook users are searching for beyond the social site. This raises an interesting issue about Facebook’s user experience and the site’s approach to ad targeting in general. Facebook’s traditional approach of matching ads to user-supplied timeline information like age and birthday, interests, and education, doesn’t sit well with everyone. Let’s say a Facebook user posts the birth of his child as a Life Event, and soon begins to see ads for diapers and baby food while he’s on the site. While he could appreciate the ads’ relevance, he might just as easily feel as though they’re an invasion of his personal life.

Some users are possessive of their news feeds, and of their Facebook experience as a whole. With social media, this is par for the course. Consumers see their accounts as something they own: they generate the content, as do their friends, so it should belong to them. Of course, this isn’t the case: Facebook indicates in its terms of service that it maintains the right to employ user content as it sees fit. That includes using it to deliver targeted ads in the interest of providing a more relevant user experience and a more valuable media buy.

Now, users are starting to see ads that aren’t just based on what they say they like on their profile page, but what they prove they like through their Internet browsing habits. Researching a vacation can generate Facebook ads for hotels and resorts, even if the user has never indicated any interest in taking a vacation on Facebook proper.

Although the behavioral information FBX provides to its advertisers is anonymous, one has to wonder: what will consumers make of this “all-seeing” approach to delivering Facebook advertising? Facebook has made every effort to ease the transition to more prominent and better-targeted ads by giving users more control over what they see in their feeds, limiting targeted news feed ads to desktops (for now), and marking ads with the AdChoices icon. With millions of users continuing to post deeply personal information, though, it’s likely Facebook will still come up against some resistance.

Consumers have grown accustomed to news feeds that are primarily comprised of content about their friends and connections. With more and more of that real estate occupied by ads, however, this situation will shift. At what point will consumers lose interest in their news feed because it’s more about advertising and less about social networking? When they do, will they lose interest in Facebook as well?

As Facebook continues to experiment with its news feed, media buyers and brands should actively monitor user comments made to their ads, and react accordingly – whether that means pulling their post or reassessing their strategy overall. A social network is nothing without its user base. Ultimately, Facebook’s members will decide whether its ad program is successful, and advertisers must do their part to play by the social media rules.

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