Why Facebook would not have made any money 10 years ago
by Aaron Goldman
In the second quarter of this year, Facebook announced record earnings, sending its stock price above $40 for the first time. For the period, Facebook generated $1.8 billion in revenue, 88% of which came from advertising. 10 years ago, this would not have been possible. To understand why, let’s back up a bit farther than that…
My first exposure to online advertising was in college. I worked at the Daily Illini newspaper and we had just launched a website and began selling banner ads on it. Due to limited inventory and a highly-targeted audience, we were able to command $20+ CPMs.
In July of 2000, I started my first job out of school at L90, one of the first online ad networks. We represented some premium sites on an exclusive basis (read: $20+ CPMs) and had hundreds of other sites that could be packaged as channel or run-of-network buys (read: $2 CPMs).
Over the next 5 years, I worked with hundreds of clients ranging from big brand advertisers (read: $20+ CPMs) to direct response marketers (read: $2 CPMs). Being exposed to so many different campaign goals and so many sources of inventory gave me a pretty good view of what really worked when it came to digital marketing.
L90’s ad server, adMonitor (built by the guys behind Rubicon Project and eventually sold to DoubleClick) ran some pretty nifty budget allocation and optimization algorithms. We also had campaign coordinators (my trusty advocate for many years was Ivette Osorio aka ‘Lil B) who manually optimized campaigns to meet delivery and performance goals.
During my time at L90 (which became MaxOnline after acquiring DoubleClick’s media network and soon-ish thereafter sold to IAC, which sold to Ask Jeeves, which sold to IAC) I saw many ad units come and go — RIP pop-ups and PowerAds. I also saw many publishers come up and go – RIP Thirsty.com and WebMillion.
And, while I saw different many types of ads perform very differently across many types of websites, there was one constant, inalienable truth that bared out in every single direct response (DR) campaign we ran… social media inventory did not work!
To be sure, from 2000-2005, social media was much different than it is today. At that time, social media was generally referred to as user generated content (UGC) and was comprised of any web page that featured content created by users – ie, chat rooms, bulletin boards, dating profiles, etc.
At L90, we had quite a bit of UGC in our network and those pages/publishers were always the first to be optimized out of DR campaigns. Even at $0.20 CPMs, we could not make them hit performance targets. Bottom line, the content was crap and the people reading it were blind, at best, and annoyed, at worst, by ads.
Here are 7 things that did not exist 10 years ago and, hence, why Facebook would not have made any money back then:
- Advanced targeting – today, you can target precise prospects and customers based on social network likes, interest, and connections and/or what you know about their behavior off social networks (eg, Custom Audiences and FBX). 10 years ago, the best you could do what target a certain page/category on a website and maybe overlay geographic settings as well.
- Sophisticated data management – today’s marketers are quite evolved with how to collect and use data to improve online advertising these days. Many leverage data management platforms (DMP) to store and map cookies, allowing them to buy only the best ad impressions. As a result, much of the waste that ran rampant in remnant inventory 10 years ago can be eliminated and/or that garbage is turned into another marketer’s treasure when they realize who the person behind the impression really is.
- Native ad formats – ads on social networks no longer look and feel like ads. 10 years ago, ads were just banners smashed in above and around content. Today, social ads are highly integrated into the fabric of each social network and with respect to the content (eg, News Feed Promoted Posts and Sponsored Tweets).
- Better tracking and attribution – marketers can now close the loop from impression to click to conversion and see the full value of social media ads. Our research shows that Facebook ads are 12-30% more valuable when marketers apply alternative attribution models to last click. 10 years ago, the last click was getting all the credit and/or marketers were relying heavily on publisher-reported numbers and, hence, giving credit for the same conversion to multiple sources.
- Optimized bid algorithms – today’s ad servers are much more flexible and scalable than they were 10 years ago. Whether it’s a demand side platform (DSP) or bid management platform (of which Kenshoo is the recognized leader), the technologies that deliver ads take into account thousands of variables when determining the exact right amount to pay for each impression or click based on its actual value. 10 years ago there was no such thing as real-time bidding (RTB). The best we could do was daily optimization.
- Savvy online shoppers – people are more comfortable buying stuff online these days and, thus, convert better following ad interaction. 10 years ago, conversions were fewer and farther between. Showrooming meant searching online and buying in store.
- Tailored web experiences – marketers have gotten pretty darn good at creating digital assets to meet the perceived intent of visitors based on entry point and device type. 10 years ago, there were no smart phones and tablets so it didn’t matter if you had an optimized site or app. But there was also very little customization going on with landing pages and other “fixed” web experiences. This is another reason why conversion rates lagged and ads just didn’t work on social media properties.
Today, Facebook has become a staple of every major marketer’s planning and budget cycle. Twitter is fast on its way to reaching this status. And LinkedIn is a must-buy for any B2B marketer. 10 years ago, these sites would have been the first to get cut from the buy. What a difference a decade makes! Makes you wonder what marketing tactic we consider crap today will emerge as a $2 billion quarterly opportunity in 2023. FWIW, my money’s on mobile ads.
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