How Facebook’s latest monetization efforts may take shape in 2013

After eight years focused on user growth and building the foundations of its platform — News Feed, location and Open Graph, among others — Facebook went into 2012 prepared to go public and become more serious about monetization.

The social network launched several new ad types and opened a number of other potential revenue streams. Here’s a look at Facebook’s monetization efforts last year and how they might evolve in 2013.

News Feed/Mobile Ads

News Feed ads, starting with Sponsored Stories, launched in January. These same ad types came to the mobile feed in March, and over time, the social network began allowing page post units and other non-social ads. Mobile app installs came to the feed in August. Facebook previously allowed feed-based ads in 2007 but it had never shown ads on mobile devices until this year. Now, the social network is earning $4 million a day from News Feed ads, with three-fourths of that from the mobile feed. Advertisers themselves are pleased to have more prominent inventory, which generally leads to higher clickthrough rates and lower costs per click. In 2013, Facebook is likely to put more ads in the feed and continue to tinker with their design to optimize performance and improve user experience. We’ve heard a new video ad unit is already in the works, and believe more interactive and immersive experiences could be on the horizon.

Facebook Exchange

Facebook introduced its Facebook Exchange, a real-time bidding system that allows third-party platforms to place retargeting ads on the social network after users visit external websites marked with cookies. FBX came out of beta in September, but only a limited number of partners have access to the exchange. Expect this number to grow in 2013. Early partners are reporting lower costs per acquisition than on other exchanges, and many advertisers are pleased that their ads appear above the fold and on brand-safe pages, which is not always the case with other exchanges where advertisers can’t be sure where their ads are being placed or how many others they’re competing against. The Facebook environment is much more controlled. Retargeting data cannot yet be combined with Facebook’s demographic and psychographic targeting options — nor can it be used for social ads like Sponsored Stories or page post ads in News Feed, but many expect these will become features of FBX in the future. TechCrunch recently reported that Facebook may be looking to bring FBX to mobile.

Facebook Gifts

Two years after Facebook shuttered its virtual gift shop, the company unveiled Facebook Gifts, a desktop and mobile feature that allows U.S. users to buy physical and digital goods for their friends. Because the recipient enters their mailing information, the sender doesn’t need to know a friend’s address. Companies like Starbucks, Apple, Gap, Brookstone, Mondavi Wines and Fab.com are already selling items through the platform, but 2013 will likely see even more high-profile retailers signing on. We can also envision the Gifts platform eventually opening to third-party developers so Facebook could power the gift-giving flow and payments experience on other sites and apps. Currently, Facebook is curating its catalogue, taking photographs, writing copy, designing packaging materials and other activities that could require a lot more manpower as it scales its offering. A platform approach might be more lucrative in the future, though perhaps not as soon as this year. In 2013, look for Facebook to improve its recommendation engine and begin promoting gifts based on users’ status updates, not just birthdays and life events.

Promoted Posts

In May, Facebook began testing Promoted Posts as a way for page owners to reach more of their fans and friends of fans through News Feed posts without having to create campaigns in the main ad dashboard. Instead, page owners can click the Promote button on their posts before or after they make them. This has since rolled out to most pages on the social network and replaced the Reach Generator program. Facebook announced that more than 300,000 pages promoted 2.5 million posts between June and December.

Around the same time that Promoted Posts came to pages, Facebook began testing a similar feature for users’ personal profiles. Users can pay a few dollars to promote their status updates and other posts to the top of friends’ feeds. After a limited test in New Zealand, this was rolled out to the U.S. in October. It generally costs about $7 to promote a single post, which seems a bit steep. The company is likely continue to experiment with this product in 2013 to find the right price point and experience for users and their friends.

Offers

Offers are a new story type for pages to post coupons that users can collect from News Feed or ad units. Unlike check-in deals, which required users to first visit a physical location, offers can be redeemed in-store or online. Although this started off free like other page posts, it is now a paid feature. Pages must spend a minimum of $5 to post and promote their offers. The price increases if pages want to reach more fans and their friends.

Sponsored Results

In July, Facebook introduced “Sponsored Results” ads that allow advertisers to promote their business in the social network’s drop-down search results. Rather than broad keywords, advertisers bid against specific pages, apps or places. Facebook’s other demographic and interest-based targeting can be layered onto these ads as well. However, with Facebook’s current search product, users don’t have the same level of intent as they seem to with search engines like Google. This ad type will likely take form as Facebook evolves its search feature.

Logout Ads

Facebook began offering large premium ads that display on the logout page, immediately after Facebook users log out of Facebook using their desktop web browser. These ads still can only be purchased by working with Facebook directly, and they come with a price tag equivalent to takeovers on sites like YouTube or Yahoo. Advertisers like Microsoft, Ford, Samsung, 1-800 Flowers, Subway and others have used this ad type, but many others have expressed doubt about the value of reaching users after they’ve left the social network. Facebook will have to share some results or do more to convince advertisers that this unit is worth it.

Paid Messaging

Just before 2012 ended, Facebook announced a small test that allows some users to pay to send direct messages to another user’s inbox rather than their “other” folder. Senders whose messages would have appeared in a recipient’s “other” folder will be prompted with the option to pay $1 to have the message routed to the inbox instead. If the sender chooses not to pay, the message will still be sent but not to the main inbox. For now this is a limited test among U.S. users and it is not open to businesses or pages. We could see Facebook expand on this test or introduce a variation of the product for advertisers in 2013. We’ve seen hints in Facebook’s code that this could be in the works.

Subscription Payments

Facebook announced in June that it would phase out Credits in favor of a user’s local currency — dollars, pounds or yen, for example. The social network also began to support subscription billing for apps on its platform. Zynga and Kixeye have been offering subscriptions for premium game experiences, but we haven’t seen other apps use this aspect of the platform. In 2013, Facebook is likely to change its fee structure for Payments — taking less than 30 percent for some apps — which could encourage more non-game applications to use the system. Facebook also announced a beta test for paid applications in May, but the social network hasn’t said anything about this since then. The company didn’t reveal which developers were part of the beta, and it’s unclear whether the test is still going on. We could hear more about this in the new year.

Other Opportunities

Mobile Ad Network

Facebook began a test in September to allow its unique targeting data to be used for mobile advertising in third-party apps and sites. This seemed like the beginnings of a mobile ad network, but the company later said the test ended in December. Facebook says it is focusing on its own native mobile ads for the time being. AllThingsD and Business Insider reported that the social network was considering buying Microsoft’s Atlas platform, which could put the company in a better position to launch an ad network in the near future.

Premium Services

Facebook Chief Operating Officer Sheryl Sandberg said in October that the company is looking at opportunities to sell premium services for businesses. Sandberg didn’t offer any specific examples, though based on job listings posted to Facebook’s careers site over the past few months, we’ve suspected that the company could be making a play into providing CRM or data management solutions. In March Facebook added a listing for a Software Engineer, Sales/Marketing Tools to work on “inventing the future of Social CRM” and “develop a suite of applications for large advertisers, media agencies, and Facebook’s global sales force.”  In August, we saw Facebook put out a call for Product Marketing Manager, Monetization: “an expert in data management platforms” who will ”develop our plans and vision for how we can enable businesses to better reach their customers and prospects on Facebook.” Look for some of these solutions to debut in 2013.

Collections

In October, Facebook started testing a Pinterest-like feature called “Collections,” which allows retailers to post product photos with buttons to save the items to a wishlist, as well as links to buy from their sites. The first test, which included seven retail partners, ended later in the month, but Facebook began another test in December with 14 retailers. We’ll likely see the full rollout of the product in the first half of 2013, and we expect this to be a paid product, similar to what Facebook has done with its Offers posts.

Nearby

In mid-December, Facebook launched Nearby, a local search and discovery feature in its iOS and Android apps. Users can search for specific places, browse categories or see broadly what’s around them, organized by their friend’s recommendations, check-ins and other social cues. We could see Facebook offer sponsored listings so businesses can be highlighted in different sections of the app or appear higher in search results.

App Center/PMD Center

In Spring 2012, Facebook launched App Center, a personalized dashboard that aims to improve app discovery across the web and mobile devices by sorting Facebook-connected apps by category and user ratings. In December, the social network revealed PMD Center, which serves as a directory of companies, tools and apps for social marketing and advertising. Both of these areas lend themselves well to native advertising, though they don’t offer this yet. Facebook may eventually allow apps to pay to be featured more prominently or let PMD companies sponsor their profiles or specific case studies on the site.

News Feed Modules

Facebook has brought several new modules to News Feed, including ones for Suggested Events, Upcoming Concerts, Recently Released Albums, Recent Articles and New Music By Artists You May Like. We suspect Facebook will continue to test new features like these, which use Open Graph data and other cues to generate stories that don’t come directly from friends.  Upcoming events, recently released albums and other similar features could easily be options for ads in the future. For instance, there could be an “Upcoming Films” unit for new movies, a “Happy Hour” module for nearby bars and restaurants or “Ongoing Sales” for retailers or online stores. Businesses could pay to be featured among other organic recommendations.

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