Much of the attention on Facebook’s initial public offering this week has been on whether the social networking giant is valued too highly. But whatever its current worth, Facebook has a potentially huge new source of revenue coming its way from “social advertising.” According to a new research paper I’ve just published, Facebook itself is only just beginning to realize the untapped potential of social advertising, in which marketers use online social relationships to improve ad targeting using data on Facebook users’ friend networks.
We use the Internet to research things all the time. Whether it’s a big purchase like a vacation or something smaller like a pair of running shoes, we often begin with a search for the topic online, eventually drilling down to find specific product reviews and details. But what happens when the pattern of websites we visit triggers personalized online ads that follow us around the Internet? If you’re later reading an unrelated article on a news site, will you really pay more attention to an ad for the specific hotel or pair of shoes you were looking at earlier?
The answer is: probably not. It turns out that when people are at the early stages of researching on the Internet — and haven’t likely developed strong product preferences — they respond better to generalized messages intended for a mass audience. Ads that are too specific aren’t going to convert