Facebook’s Ad Business Is a $3 Billion Mystery
So the numbers are out, and we know that Facebook’s ad business really is huge. And it really is growing like a weed. Just like we thought.
But how exactly does Facebook’s ad business work? We still don’t know a lot about that part.
The S-1 mentions “advertising” 123 times, and “advertisers” another 117 times. But when it comes to describing how the company actually sells advertising, it is vague.
We know that some of Facebook’s ads are sold via an automated self-serve system, and some are sold via sales teams working in 30 offices around the world. And we know that Facebook uses an auction system to price some of its inventory, and that it lets advertisers target users to some degree, based on their demographics and interests.
But Facebook doesn’t break any of that out in its filing. It simply has one big bucket labeled “advertising.” There’s no discussion of click-through rates, or the size of the average ad buy, or what percentage of ad buys come from repeat customers, or how “lumpy” its sales are.
The company does mention that last year revenue increased, in part because it served up 42 percent more ads, and in part because it was able to charge an average of 18 percent more for each ad it served. But it doesn’t get any more specific than that.
Not that we should expect much more in an S-1. When Google went public eight years ago, its description of its ad business was also pretty vague (here we note that Facebook is stocked with Google expats, starting at the top, with COO Sheryl Sandberg). But by the time of the Google IPO, lots of ad folks had a decent grip on AdWords, its one key offering.
Facebook doesn’t have an AdWords, but a mix of stuff that it is playing with. It admits that this is a work in progress: “Advertising on the social web is a significant market opportunity that is still emerging and evolving. We believe that most advertisers are still learning and experimenting with the best ways to leverage Facebook to create more social and valuable ads.”
Given that Facebook generated a crazy $3.15 billion in ad revenue last year, up from $764 million two years ago, that seems to be a pretty awesome experiment. But Facebook itself seems to think things will need to change.
That’s why, for instance, it is pushing the industry to measure its ads using “gross ratings points” — the same metric buyers use for TV — instead of “traditional” Web metrics like impressions and click-through rates.
And that’s why a good chunk of the S-1 talks about the overall market for advertising — not just Web advertising, but all advertising. The message: There is a lot of money being spent on ads, and as we get even bigger, and smarter, we’ll figure out how to capture more of it.
And at some point they may share some of that knowledge with the rest of us.
RELATED POSTS
- In Its First Acquisition as a Public Company, Facebook Buys Social Gifting App Karma
- Zynga’s Stock Tanks After Facebook Fails to Pop
- The Price Is Right: Facebook Closes Near Opening Price
- And We’re Off! Facebook Shares Hit the Nasdaq at a Slight Increase Before Settling Back.
- Hear That?
- $$FB$$ Has Arrived: So Now What?
- Facebook Cheers On Mark Zuckerberg. Wall Street Gets Its Chance Soon.
- The Verdict Is In: Facebook Share Price Set at $38
- How Will Facebook’s Zuckerberg Adapt to Working in the Public Eye?
- Facebook IPO Halo Boosts Social Media Stocks
- How Will Facebook Ring in the IPO? With a Hackathon, Of Course.
- What to Expect When Facebook Is Expecting: Five Predictions for Facebook’s First Public Year
- Facebook Is Still Figuring It Out. Will Advertisers and Investors Wait Around?
- Investors Told Facebook IPO Will Be in $34 to $38 Price Range
- Facebook Roadshow Bloopers (Comic)
- Facebook’s Latest S-1 Amendment: Yep, We’re Still Weak on Mobile
- $FB Is a Buy, Analysts Say
- Facebook’s Road Show Kicks Off Electronically With Zuckerberg in a T-Shirt (Video)
- After Public Offering, Mark Zuckerberg Will Still Control More Than Half of Facebook
- Facebook IPO Docs Could Get Approval This Week, Followed by Road Show With Zuckerberg (No Guarantee on Tie)
- Updated S-1: Facebook’s Yearly Revenue Growth Up 45 Percent, But Down Six Percent From Last Quarter
- SecondMarket Lays Off 10 Percent in Light of Facebook IPO
- SEC Cracks Down on Firms Trading Facebook Pre-IPO Shares
- Tidbits From the Facebook IPO Filing: I’ll Have What SV VCs Marc Andreessen and Jim Breyer Are Having!
- During the IPO Quiet Period, Please Enjoy the D Stylings of Facebook’s Mark Zuckerberg and Sheryl Sandberg (Video)
- Facebook’s Ad Business Is a $3 Billion Mystery
- Viral Video: Farewell to the No-IPO Mark Zuckerberg
- Zuckerberg Is the Billion-Share Man: Who Owns What, Who Makes What in the Facebook IPO
- Zuckerberg Tells Investors, “We Don’t Build Services to Make Money”
- Mobile Highlighted as Key Risk Factor (and Opportunity) in Facebook Filing
- Stop All That Poking: Facebook Filing Temporarily Crashes SEC Web Site
- Zynga Accounted for 12 Percent of Facebook’s Revenue in 2011
- Facebook Has 845 Million Users
- On Its Eighth Birthday, Facebook Files to Raise $5 Billion in Massive IPO (Get Your S-1 Here!)
- Go the F**k Back to Sleep, Silicon Valley: Facebook IPO Likely to File Later Today at Earliest
- Dude, Where’s My Facebook IPO Filing? (Ashton’s on Hold!)
- The Quiet Man: Meet the Less-Known Face of the Facebook IPO, CFO David Ebersman
- Facebook Board Meeting Today for Final IPO Okays
- Facebook (Eye)PO: Tracking the Truth of the Biggest Deal of Web 2.0
- Viral Graphic: Visualizing the Facebook IPO
- Is Facebook IPO on Track for Late May?
- IPO Watch: Facebook Hiring Brunswick to Help With Comms for Expected Public Offering
- Complete Facebook coverage