Facebook May Become Bigger Than Google AdSense

Summary

• Facebook will soon launch a revamped version of Atlas.
• Facebook is on its way to becoming the most superior ad network.
• Assuming this is the case, Facebook's ARPU (average revenue per user) trends should improve considerably.

Facebook (NASDAQ:FB) is set to launch a revamped version of Atlas next week, which is a demand-side platform that will allow advertisers to buy from a larger network of websites, and will help advertisers understand what kinds of ads a Facebook user has clicked on outside of Facebook timeline and banner ads. Furthermore, Facebook can track behavior across mobile devices, where cookies don't work, and allow advertisers to understand offline behavior.

This new development will give marketers a far better understanding of interaction with ads not pertaining to Facebook's portfolio of website platforms. But it also will prove to advertisers the return on investment that Facebook is able to generate in the form of offline and online purchases.

Since it's not a front facing function of Facebook, it's not going to generate much in the way of media attention. However, Atlas will have implications across the entire ad industry, and especially on the ad agency model.

Quoted from the Wall Street Journal:

It will also provide an automated ad-buying tool known in the industry as a "demand-side platform" or "bidder," which will offer marketers the ability to buy ads that target Facebook's members as they move around the Web. "What Facebook is doing is potentially more powerful than what Google can currently do," said Rishad Tobaccowala, chief strategist of advertising holding company Publicis Groupe SA, in reference to the ad targeting and tracking potential of the companies.

Facebook's monetization trends should improve, because instead of selling just Facebook ads, it will also sell ads on other websites. I guess, conceptually you can compare it to Google Adsense. And if you don't know what Google (NASDAQ:GOOG) Adsense is, Google is just an intermediary between advertisers and websites that want to monetize their web pages through ads.

Facebook may be planning to do something similar, but unlike Google, Facebook can offer better data to advertisers on the demand side, and on the sell side it can offer higher rates. The thought of Facebook becoming one of the most dominant buy and sell side platforms in the online ad space is scary, but it's certainly feasible when considering the higher quality data.

According to AdAge:

Facebook doesn't want to overwhelm users with ads, but it also doesn't want to turn away advertisers to the point that they take their budgets elsewhere. So if Facebook the business wants advertisers' money but Facebook the social network doesn't want their ads, Facebook the company needs to find somewhere else to stick them.

So I guess Facebook's value proposition to other websites is better rates or to be more specific higher engagement rates. Even if the buy side platform is more programmatic in nature, the use of demographic data helps to tailor an advertiser to its intended target market, which helps with engagement, thus improving click through rates. On the sell side (websites selling space in return for ad revenue), higher engagement will result in more ad revenue, and of that amount Facebook may be able to earn a respectable cut of the action. This puts Facebook in a position to elevate the overall CPM for display ads between mobile and desktop for websites outside of Facebook.

But I guess what's more interesting is that by becoming an ad platform, Facebook is less dependent on the number of users it's able to attract because it can sell ads wherever the users are, which will be contingent upon Facebook's ability to add a larger network of websites to its platform.

(click to enlarge)

Source: Facebook

Facebook the website may be able to increase its pricing, but even more interesting, is that it may soon sell ads on different websites. This puts Facebook in a stronger position to drive its average revenue per user figure, and with an increasing base of users, Facebook is set to become the most relevant way for ad men to gain useful demographic and purchasing behavior data across the entire web.

Let's just hope Facebook is able to execute on this side of the business effectively. The updated Atlas is set to be launched during advertising week, which starts on September 29th.