As Facebook works feverishly this year to hammer out its business model, it should consider that the three most profitable online media companies in the U.S. (Google, Microsoft and Yahoo!) all rely on advertising revenue for their businesses. Moreover, advertising has furnished a reliable business model for every electronic medium in U.S. history and there is no reason to think that online social networking platforms will be the exception. With this in mind, Facebook should look into different ways to enable advertisers to place rich, engaging content on the site that users could share with their friends. Allowing brands to place shareable rich content on the site could also play into the company’s recently launched virtual currency program (“Facebook Credits”). The company could permit advertisers to “sponsor” Facebook Credits of users who share the sponsor’s ads with their friends. In this way, the company could generate revenues from both advertising and its virtual currency while more effectively monetizing the myriad of social interactions that occur between users on the site.

Currently, Facebook allows only site-served ads and a strictly limited set of formats. Facebook’s rationale behind its decision to limit the creativity of advertisers in this way is that it ensures a sleeker user experience. Moreover, the company clearly believes that the enhanced relevancy of the ads (since they’re served by the site which has access to all user profile data) will make them engaging despite their rudimentary content. However, relevant does not equal engaging. People share content because it’s entertaining. Conversely, people will often fail to notice boring content, even if it’s ‘relevant.’ The narrow range of creative formats Facebook offers allows little room for truly rich engaging user experiences. Thus, in its effort to create less intrusion, Facebook has in fact enabled the placement of boring content that actually clutters the user experience – despite the fact that it’s targeted for relevancy.

In conclusion, as it searches for a profitable business model, Facebook should proceed as follows. First of all, it should look to emulating profitable online media companies in the U.S. market. Second, it should remember that relevant does not equal engaging and users will ignore even the most targeted ads if they’re not entertaining. I have suggested one strategy the company could use to monetize content sharing by allowing advertisers to place rich engaging ads on the site that users could, by sharing the content, use to earn Facebook Credits sponsored by advertisers. However this is just one approach among many other, equally valid, and equal in quantity to the myriad of ways that users interact on Facebook.



Sean Gelles, Manager, Product Planning