Will Facebook Niche For Dollars Or Food?

Ed Berrera contends that as Facebook advertising gets more niche, it will become less profitable to Facebook… methinks he be wrong. (And methinks further that writing like a pirate be good. Arrrh.)

Ed’s article confuses short term inefficiencies and arbitrage – eg, Facebook selling ads at higher rates to lazy advertisers – with long term profitability. He suggests that long term profitability will come from selling ads to lazy advertisers at high rates, because they’ll be broadcast to big swathes of Facebook users.

Long term profitability for an ad publisher comes from selling ads that succeed at generating sales. Typically, lazy advertisers don’t see a great ROI, and therefore they don’t value your advertising inventory at a premium.

Niche ads are more cost effective (on a cost-per-action basis) at driving sales, as compared to broadcast advertising. Thus the demand for niche ads rises over time while the demand for broadcast ads drops over time. See Yahoo’s stock charts vs Google’s stock charts for empirical evidence of this. Recall that Yahoo is largely still a portal selling display ads

This partly explains why search advertising works better than CPM network advertising. Search is more targeted.

Of course, permission vs interruption plays a part in making PPC more effective too. But even Google’s content network is typically more effective – because it’s more niche – than comparable CPM networks.

Facebook niching will make it plenty of money. Some niches (ex.: horny single males 18 – 26 + dating sites) will prove very valuable, and the auction will drive CPCs up. Hell, why does half the adult web run Adult Friend Finder ads?

Facebook stands to make a pile of money as it caters to niche advertisers, so long as it keeps testing and optimizing its system. And for all you independent webmasters out there monetizing with ads, that’s a valuable lesson.

P.S. I’m a fan of Facebook’s responsible content restrictions (e.g. On ringtone scams) on the one hand, but I agree that they need to streamline and standardize the ad approval process.

That oft-made criticism of their system is beside the point of this discussion though.

(P.P.S. I be bloggin up a storm, so visit me now or I’ll slice your gibbons from your jib and castaway your stowaways. Arrh. )

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