Social advertising – the next wave

By June 9, 2011 5 Comments

There was an interesting article on Techcrunch yesterday arguing that Facebook will eventually pass Google in revenues – a bold claim stemming from data showing that social advertising performs very well today and will get much better in the future.  The chart below shows the improvements in ad effectiveness that come from including social data in adverts today, and the whole post is worth a read if you want to understand the upside potential for Facebook, including integrating social data with search advertising.

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I’m going to focus on what ‘social’ might mean for the display advertising world outside of Facebook, and what startup opportunities might emerge. 

The Techcrunch piece was a guest post by Hussein Fazal, CEO of Adparlor a Facebook oriented adtech company.  In his view social will be the next big wave:

Every few years, a new layer is built on top of traditional display advertising (contextual, behavioural, re-targeting) but we haven’t seen innovation in quite some time. Social will be the next fundamental change, and Facebook is positioned to take advantage of it.

And he presents some pretty persuasive evidence as well.  We all know how powerful Facebook is as a consumer site, but the stats on Facebook Connect are also very impressive with over 2.5m sites now integrated and 10,000 new ones joining daily.  Those are user acquisition figures that most companies would kill for even if they were counting people rather than websites.

All of that data will enable for some pretty wild advertising scenarios (privacy not withstanding):

Perhaps aggressive campaigns by car insurance providers (“Get $100 off your premium if you ‘like’ us on Facebook”) will allow us to one day search for car insurance, and see which provider each one of our friends is with. This will undoubtedly be more powerful than traditional search.

The question on my mind is how to build a company outside of Facebook that leverages these developments.  Right now I can see two obvious ideas.  The first is to build an ad network that uses social data to better target ads and justify a decent premium on the price of media sold versus media bought.  Our portfolio company RadiumOne is doing just this (and is doing a good job of acquiring proprietary data sources to lock out the competition).  The second idea is to build an information broker that pulls together social media data packages it nicely and sells it to advertisers and their agencies who then do the work of targeting the ads themselves, like Quantcast, but for social.

I’d love to hear thoughts on these two ideas, other ideas about how to play social from an adtech perspective, or examples of companies in this space.

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