Since Facebook has already exhausted much of the supply of highly monetizable first world users, it will need to make more money per user to grow revenue. Higher click through and conversion rates of action spec targeted ads will allow Facebook to charge advertisers more per click and waste fewer impressions to get those clicks. It’s also expanding ad inventory by complementing its ad sidebars with Sponsored Story ads in the web news feed, and it will likely monetize its mobile user base in the same way. By serving more ads at a higher cost per click, ad revenue will grow with time.
Until the launch of action spec targeting, advertisers looking to target those with purchase intent often went to search or ad networks employing cookie retargeting that scraped a user’s browsing history. Facebook only offered biographic, social, and interest targeting. These are effective for institutional brand advertising and demand generation, but aren’t as useful for reaching users in the purchase funnel. Direct response performance advertisers sometimes had to buy large volumes of clicks to drive one conversion.
Open Graph action spec targeting will help these Facebook advertisers reach users who’ve stated they’ve already made a related purchase, or plan to. This could help it break out of the demand generation stage of the purchase funnel and into the more lucrative demand fulfillment stage where Google search ads currently reign. Some Facebook advertising experts tell me action spec targeting could double ad conversion rates.
If Facebook can pull this off successfully, their valuation of $100B is entirely justified.
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