In a past life, I worked on the social news feed for a number of Microsoft products including the Messenger Social feed in Hotmail & Messenger and most recently the People app in Windows 8. When I worked on these products, we strongly believed in the integrity of the user experience and so never considered the social feed as a canvas for showing users ads.
Thus I read a pair of recent posts by Dalton Caldwell, founder of App.net, with some interest. Dalton wrote about the recent moves that both Twitter and Facebook are making to ensure that the social feeds on their sites become a great canvas for showing ads.
In his post Understanding Like-gate Dalton writes
The best ad is indistinguishable from content
We can expect to see Facebook deemphasizing traditional advertising units in favor of promoted news stories in your stream. The reason is that the very best advertising is content. Blurring the lines between advertising and content is one of the most ambitious goals a marketer could have.
Bringing earnings expectations into this, the key to Facebook “fixing” their mobile advertising problem is not to create a new ad-unit that performs better on mobile. Rather, it is for them to sell the placement of stories in the omnipresent single column newsfeed. If they are able to nail end-to-end promoted stories system, then their current monetization issues on mobile disappear.
In his post Twitter is pivoting Dalton writes
Predicting the future
In this paradigm, Twitter’s business model is to help brands “amplify their reach”. A brand participating in Twitter can certainly distribute their content for free and get free organic traffic, but if they want to increase their reach, they need to pay.
It’s no accident that this sounds exactly like the emerging Facebook business model. As discussed in that link, algorithmically filtered primary feeds are vastly easier to advertise against vs unfiltered feeds. The issue for Twitter is that Facebook already has a far larger userbase which is already trained to read an algorithmically filtered feed.
In a twist, I wouldn’t have predicted a few years ago it is now a regular occurrence for both users of Facebook and Twitter to see ads in their feeds. Twitter has gone as far as effectively crippling new Twitter apps to ensure that every Twitter user gets an
ads-heavy unfiltered Twitter experience. The reason for this is straightforward. Both companies have sky high expectations from investors as evidenced by Facebook's $100 billion valuation it has failed to meet and Twitter's $8 - $10 billion valuation on $100 million in revenues. The challenge for both services is that investors are expecting Google-like returns on investment but neither of these companies have a Google-like business model.
The problem with ad supported online businesses is that for the most part their business models suck. In a traditional business, if you focus on building a great product or service that provides an excellent customer experience then you will be making money hand over fist. In most ad supported online businesses, your business is selling your product’s audience as opposed to the product itself. That means if you want to make more money you have to pimp out your audience often in disrespectful and intrusive ways to eke out that extra dollar.
The one place where this is different is online search (i.e. Google’s primary business). In the web search, the ads aren’t just indistinguishable from content but in the most lucrative cases, the ads are better than the content. As an example take a look at these searches
Since we may get different results, I’m including a screenshot below
There are 8 ads in this screenshot and 2 search results. However instead of being irritated as I would be if the ratio of ads to content was 4:1 in a YouTube video or Facebook feed, the ads are actually more relevant than the organic search results. This is the holy grail that Twitter and Facebook are trying to achieve.
As Dalton points out, Facebook has already socialized its users to the notion that brands will post commercial messages to the feed. In addition, brands have grown so entitled to it then when asked to pay for them since they are ads, they get outraged. However Facebook has been boiling this particular frog for a while. Facebook encourages advertisers to create Pages and users to like Pages so that they can stay connected to the brands they care about. Content in your feed from people and brands you don’t follow snuck in under the aegis of showing you content your friends interacted with. Finally not only has Facebook had promoted posts for brands for a while, they now also allow users to promote their personal posts to friends for $7 a pop.
Without really thinking about it much, we’re halfway to a future where a significant percentage of the content of your Facebook feed is paid. Since the posts go through the same ranking algorithm as your regular feed, they are more likely to be relevant to you than the traditional ad products that Facebook and other online properties are known for today. When the goal is to be entertained, do you really care if that viral video of the day being shared via a friend is a paid impression or not?
Twitter is playing catch up here but if they don’t, the flop that was Facebook’s IPO will look tame in comparison.
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