When Facebook launches its “SocialAds” advertising product on November 6th, the technology will reportedly rely on cookies — unique identifiers sent to each user’s computer from Facebook, and tracked by Facebook when they visit web pages.
The cookies can then be used to serve users contextually relevant ads on other sites, as those users surf across the web.
This could be how Facebook’s $15 billion valuation implied by Microsoft’s investment last week will start to make sense.
Lee Lorenzen, of Altura Ventures and Facebook application company Adonomics, cites sources in Microsoft and Facebook as well as other developers during a long essay on the possibility of Facebook using cookies to track users, while AllFacebook confirms the rumor.
A Facebook user, for example, who’s a 26-year-old male and lists that he likes beer in his Facebook profile might get served an ad for a beer company when he goes to check his favorite team’s scores on an outside sports site.
Cookies are pieces of data containing information about web pages that users look at, that are stored in the user’s web browser by sites. Facebook already uses cookies to recognize existing users as they return to its site for a new session, so they don’t have to login every time. The difference going forward would be that the cookies could be used by to track users beyond Facebook’s site.
What we don’t know is whether Facebook would control the cookie data (forcing other sites to partner with Facebook, by opening their pages to advertising wanting to access the platform) or whether Facebook would license the data away to another network willing to pay big bucks, for example a BlueLithium or Tacoda..
Krishna Subramanian of BlueLithium, an ad-targeting company recently bought by Yahoo for $300 million, tells us the addition of social data to ad networks can greatly improve the value of banner advertising.
Cookies help advertisers target ads to individual Facebook users, because these cookies reportedly could automatically identify each Facebook user as they surf the web, and then serve advertising relevant to their stated interests on Facebook.
Advertisers would be able to clearly see interests in beer and other such personal information for 50 million Facebook users, for the first time. Right now, the ad networks record actions like surfing or clicking, but lack specific data about what you’re actually trying to accomplish through your actions. There aren’t many places besides a Facebook profile where the average young man will write “I like to drink beer” next to their name.
Cookie-tracking technology is already in place at ad networks such as aQuantive, a company bought by Microsoft earlier this year.
CPMs, or the amount of money gained per thousand views of an advertisement, are low on social networks — as low as $0.10 per thousand impressions. The people who would benefit most: Vertical advertisers like beverage makers, Subramanian tells us. While he notes not every type of advertiser may benefit, some may be willing to pay CPM rates that are double what they are paying now.
Microsoft’s strategic investment in Facebook means it not only has the chance to play with the company’s rich and untapped data set, it gets to keep it away from Google.
Lorenzen has previously claimed that Facebook could be worth up to $100 billion because of its ability to drive relevant online advertising. Others scoff at his valuation.
The rumor of a highly-targeted Facebook ad network has been going at least since August (our coverage here).
Update: A bunch of other companies have now ganged up against Facebook, to create their own vibrant platforms.
Tags: co:Facebook, people:lee-lorenzen29 Comments
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Andre Quellos said:
Lorenzen is a joke. The online ad market is ~$20 B (if I’m not mistaken), giving Facebook a 5x multiple over the market size? $15 B is already too high.
Give me a break.
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Todd Allen said:
“Cookie-tracking technology”… You keep using that word. I do not think it means what you think it means. (Sorry, Princess Bride)
I’m sure it uses cookies, but that’s not the point. Cookies are generally tied to a single site, but these new systems are allowing tracking across networks of sites.
Facebook does have interesting user information, but it’s hard to imagine “Cookie tracking technology” will be the big win for them.
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Happy said:
All of this ID sense technology is a little ominous. Whatever happened to transparency and community spirit, as with smaller, more intimate sites like say http://www.b4uparty.com
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sameh said:
sameh el bana
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Chris said:
Gosh…we endured last week of Facebook this Facebook that…the last few days was nice with no “over the head PR work”,”dreamy” Facebook number and then all of a sudden you drop a $100 billion article on Facebook. Whoever thinks Facebook is or will be worth $100 billion should stop working and go back to school. The hype is getting really stupid and will backfire on Facebook for appearing really greedy. The more people come up with Facebook billion dollar valuation, the more i am anxious and support some one to come up with a competitive site and kick fb out of the game.
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Eric Eldon said:
Todd Allen: Cookies aren’t necessarily tied to a single site. Ad networks already try to use cookies to identify individual consumers across sites, then serve them the ads that are most relevant to the sorts of sites they’ve already visited. These ad networks are missing the data that Facebook users have entered into their profiles about what they actually like. Cookies may be the most direct way to identify Facebook users. Make sense? Also, I don’t get the Princess Bride reference.
Chris: Even harder than having to read about all the hype around Facebook is having to write about it all the time. Still, don’t you think a specific clue as to how Facebook could actually become so valuable is something worth reading?
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dave mcclure said:
@eric: you don’t get the princess bride reference? required reading / watching my friend!
see “INconCEIVable!”
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Darian said:
I’m a little confused as I don’t quite see how this is significantly different from what Revenue Science and Tacoda does. Obviously FB will have a leg up because they can run it against their entire user-base which from the outset will be larger than Tacoda or Revenue Science’s profile partnerships. Can some-one explain the differences for us lay people…
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Todd Allen said:
Eric: Yes, as I said I’m sure cookies are used. That’s pretty much how the entire world does tracking on the Internet. My point was just that the main focus of your story seems to be around the cookies, when it has very little importance.
I agree with you, the data FB has about a user would be exciting for a third party site, ignoring the privacy debate.
Ps. You *really* need to go watch Princess Bride. Funny stuff.
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Joe said:
@Darian - Tacoda and Revenue Science build up profiles based on the sites you visit and content you consume. SocialAds will use the information in your Facebook profile.
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Eric Eldon said:
Todd Allen: My name is Inigo Montoya, you killed the point of my blog post — that cookies are how Facebook’s data will be applied to web ads — prepare to… just kidding.
I haven’t seen the movie in years, so I was a little rusty on the reference (thanks, Dave).
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A. Smith said:
Eric,
I think the implied point in the user comments is simply that the stories on Facebook are not believeable. Many speak of changing economics due to the web, but we already know the economics don’t change ever when valuing companies. This has been the case in the 80’s with the emerging PC companies, the 90’s with everything dotcom including GeoCities, Tripod, and Xoom. Facebook, as well as MySpace, are simply the latest overvalued technology companies who will go through their lifecycles, and ultimately be valued more realistically.
A simple test, what revenue per user does Facebook need to achieve a $100 billion dollar valuation? Compare this number to established media companies who have a defined business model - this includes old media, as well as new media companies like Google, Yahoo, etc. Facebook’s per user value is north of $300 at a $15 billion dollar valuation, hence it needs to be at least $2,000 per user today to realistically achieve a $100 billion dollar valuation. What media company books $2,000 per user today?
No media company has per user revenue numbers as high as $2,000 per user per annum. Neither will Facebook.
I hope this “sniff test” helps you as well as many other bloggers recognize the insanity of the chatter surrounding Facebook and its’ value. Yes it is a popular site, yes it is growing like crazy, and yes it is bleeding red ink while looking for a business model.
An opportunity exists for bloggers who seek to be the voice of reason regarding Facebook, and today’s crop of unproven social networks.
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Mathew Ingram said:
Eric, I think your point is a good one — but the $100-billion figure is so ridiculous that it undermines your entire argument. Even if you took a zero off it would still be pretty unbelievable, but $100-billion is out in La-La Land somewhere.
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Joe said:
@ A. Smith
I think you’re missing a few things here. First, $2K per user per annum would mean $100B in REVENUE, which is different than a $100B valuation.
Also, the valuation is based in part on user growth, so your $/user figure should take growth into account.
If Facebook had 5 times as many members then they would need a *lifetime* value of $400 per user (@ zero growth) to justify a $100B valuation, which is still difficult but much less daunting than you suggest.
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Eric Eldon said:
A. Smith: This blog has let loose its fair share of criticism on Facebook’s valuations over the past year. But remember back when everyone told Zuckerberg he was crazy not to sell for $100 million? Now, Facebook is making 50% more than that in annual revenue.
That said, I’m not endorsing the $100 billion number. I’ve pointed to what those who do believe it are saying, and I’m describing what their case is.
Please go read Lee Lorenzen’s post that I linked to. For example, he points out that Facebook is on track to gain up to 200 million active users by next year. Whether or not you agree with such an estimate, a year ago would you have thought that Facebook would have doubled to 50 million active users today?
Specifically, if the number of users keeps going up on Facebook, this means the advertising value of each Facebook user doesn’t need to go up in order for the company to become immensely profitable. Facebook would just know more about more people who surf the web, and would then help companies serve up more relevant ads to them.
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A. Smith said:
@Joe,
I was referring to present value, which would need to be $2,000 per user today to justify $100 billion. This is stated as “What media company books $2,000 per user today?”.
Facebook doesn’t have the value today, and the media companies that are public have the present value defined based on their reported revenue plus growth forecast.
You’re argument simply increases the user base, but the result is the same.
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GottaWonder said:
You have to be kidding on the current CPM value of FaceBook’s (or any other social network for that matter) traffic. Think MUCH less than $.10. Think $.01.
Suspect that MSFT has yet to make a nickle on their monetization deal. Was it worth $240M for MSFT to keep that traffic from going to Google? You bet.
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steven said:
Point of fact. Social networks are so engrossing with the personal content of the people that create it, that ads simply get overlooked. This means that banner ads on social networks suck!!!! period!!!! So let’s say that Facebook’s new technology really is a winner, and it improves ad awareness and click through rate by double. Then you have ads that suck, to just bad. This will turn them into a $100B company? Spoken by the words of someone who just doesn’t know.
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Yuri Ammosov said:
Given that both IE and FF now come with banner removal technology built in - I wonder how internet advertising model still works. I have not seen a single banner on the web in 3 or 4 years - it is all cut off my web pages on the fly by Firefox. But use it as a base for $100 B valuation? Well, at least you’ll be invited to the parties from which your colleague Morrison just got banned for life. :))
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Darian said:
Commenting on Joe’s response to me. Actually when I was VP of Advertising for Tribe.net I did a deal with Revenue Science to take non-personally identifiable profile data to serve ads against on our site. And, both those companies were interested and attempting to do similar deal structures. So, in my mind they were already doing what Facebook will do. Only not as a partnership or Third Party Provider but under one house. That’s why I wanted to know if this was any different than the deal I did in 2004. Doesn’t sound like it–just much larger, under one roof and potentially much more successful.
Annecdotely we saw a fairly significant increase in click-through rates. Of course this was a small test and we were sharing rev with two additional parties (Overture, who supplied the ad, Rev Science who matched the ad to the profile data).
Glad to see someone else is figuring out a way to take this to the next level and show people ads that are more appropriate to who they are not where they are…
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Johnny Wad said:
Here’s my response to Facebook having a valuation of $100B.
WHAT! NO WAY IN HELL. FIRST THEY SHOULD HIT THE $1B IN REVENUE AND ONLY THEN WILL I GIVE IT A 100X MULTIPLE ON REVENUE. WHAT A JOKE!!!!
You guys are getting crazier than Techcrunch’s love fest with Facebook
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PJ Brunet said:
“I’m sure it uses cookies, but that’s not the point. Cookies are generally tied to a single site, but these new systems are allowing tracking across networks of sites.”
A common misconception. The rule is a cookie can only be read by the domain that set the cookie. HOWEVER, when you visit a domain, such as VentureBeat.com, the HTML of the page can load images from off-site domains, ad.doubleclick.net for example here. Now let’s say I’m surfing Facebook, and Facebook has a deal with doubleclick.net to serve ads through Facebook, they can combine and share everything they know about me. It’s easy to do.
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Xavier Vespa said:
I thought this was a well-known fact..
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Mrt said:
Todd Allen: “Cookie-tracking technology”… You keep using that word. I do not think it means what you think it means. (Sorry, Princess Bride)
I’m sure it uses cookies, but that’s not the point. Cookies are generally tied to a single site, but these new systems are allowing tracking across networks of sites.
Facebook does have interesting user information, but it’s hard to imagine “Cookie tracking technology” will be the big win for them.
u r right
http://seydimat.blogspot.com/ -
Richardson said:
100B still smells odd.
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Manigandan said:
Cooking technology is good from layman angle.
Ooops $100 billion is too much meaningless -
ksr said:
This is just an empty comment
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joe said:
nice article…rich, smooth
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豐胸 said:
I wasn’t sure where to make this post, and I am sorry, if I posted in the wrong place
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