Andrew Chen Archives

Q: Do you think it makes sense for Facebook to build out a self serve performance based ad network?

Posted by joy

A: There are a couple interesting angles to consider here:

Facebook has a very interesting local play, due to their understanding of geographic and friendship networks. Very few companies in the world have as much information about your location and interests. However, the problem with local is mainly that the CPL to actually acquire a plumber in Tacoma, WA is often more than the revenue you’d ever get from it.

From the perspective of inside the Facebook site, I pretty much think it’ll be a grind-it-out brand ad sales play the same way Yahoo is. The more I think about Facebook, the more I think they are the new Yahoo – primarily strong in messaging and communication, they are more of a social utility than they are anything else. For them to succeed in generating significant revenues driving traffic to other sites, they have to move from a more people-oriented model to one where links to external sites play a bigger role in the interaction. That’ll be hard to do since it mucks with Facebook’s core mechanic.

And yet another angle is for Facebook to start their own performance ad network that places ads OFF of Facebook, as the reader suggests. This is absolutely feasible, but my guess is that any use of the information from on the site would cause a privacy nightmare for the company. I mean, it’s one thing to have Beacon which tracks data from OFF the site, but once you start trying to use data from on the site and giving it to any ol’ publisher to use, then you are in deep trouble. Obviously it’s likely that the privacy line is moving and evolving over time, but the public’s not ready for it now. (Even as companies like Fair Isaac, Axciom, etc are all mining even more sensitive information)

Even if the privacy implications were mitigated, how well would the Facebook ad network do? I’d think that with how smart their folks are, they could probably get somewhere quickly. However, remember that much of ads is not a technology problem – a lot of it as a sales execution problem – and that may not be where they want to spend their effort, even if they could be successful in the short run. After all, when you have a $15B valuation, picking up $100MM in revenue here or there may not be interesting if it’s hard to scale it up to $1B in revenue later on. 

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.