Ad-free Facebook Premium!?

Understanding advertising

As a fond user, fan and advertiser on Facebook I started panicking a little after I read the somewhat simple post from @biz about ‘Facebook Premium’.

I really believe in the power of Ads. About three months ago I launched a new webshop. It was on Facebook where we found our first fans -and- revenue. We could easily spread the word and get some exposure. It didn’t take long until we decided to actively use the Facebook Ad platform. After investing in ads and growing our brand on Facebook we can point 70% of our sales to customers coming from Facebook.

Facebook literally is the backbone of our growth, we started with zero dollar of advertising budget, and right now have grown to around 10k in total.

For us, Facebook ads work. We are able to make a good Return On Investment, the only reason we use them. The same counts for other bigger advertisers. In total, Facebook is expected to make over 6.6 billion dollar this year on advertising, around 1/8th of the total global internet ads market.

Companies invest over 6 billion dollars, because it results in more revenue. If Facebook stopped advertising, a multiple of this amount will be evaporated form the flourishing e-commerce market.

Of course, some of this revenue will flow to other advertising platforms. However, most of these platforms are owned by their competitors (Google eg.). By decreasing the revenue on ads Facebook is sponsoring other ad platforms and indirectly investing in Google.

The real problem Facebook has is not ads. It’s irrelevant ads. Ads that get served to the wrong people. Ads nobody likes. I get these a lot, sometimes I find the suggestions Facebook comes up with funny, sometimes I’m a little shocked Facebook (or the advertisers) think I’m interested in certain products. However, I actually find some of them really useful, and so do the consumers that visit our webshop through Facebook ads.

By launching a premium ad-free model you’re not solving the problem of irrelevant ads. You’re avoiding it.

Sure, Facebook can make a lot of money on premium services. I love premium services! they bring cool extra features, awesome extra’s and you actively support the company you love by paying for their products. The question is what will win in the end. Premium Services have their downsides: they create a certain high quality expectation towards users and it’s hard to increase the pricing after launch. If you’re serving billion’s of users the expectation of delivering great extra’s is challenge.

Advertising, especially relevant advertising, is a growing market. Many small companies enter Facebook and the opportunity here is great. It takes a small budget to start, and if you’re ad is relevant you can actually get a really good ROI.

Facebook has the most accurate information to create relevant ads, their FBX platform allows other advertising platforms to do really specific retargeting and by targeting connected fans ads can get really relevant. It’s the wet dream for every advertiser.

Facebook still needs a lot of engineering to get this relevancy higher. But once it reaches that point, it get’s the best ROI out there.

Good ROI’s means attracting more advertisers. It means spending $1 on Facebook makes more money than spending $1 on Google. Every wise marketeer will reconsider advertising on other platforms.

Once Facebook grows their relevance and ROI, which is possible with their data, their ad revenue will grow as well. Unlimited, unlike premium fixed prices. Maybe, in a future far far away, people will even start loving ads.

An Ad-free version of Facebook costs a lot. Probably the most engaging users (ad-clickers) will choose for the premium service. If I copy @biz’ calculation; 10% of the users using premium, resulting in 1B revenue may as well cost 20% of the total advertising revenue, which is more than the 1B gain.

Sure, advertisements right now suck. However, Facebook will rather invest in a more relevant and bueatifull advertising experience rather than building a premium different experience for a subset of users.

Oh, and @biz, I’d love to pay for Twitter though.