Facebook Looks Inward on Advertising

Richard Waters
Thursday, 20 Dec 2012 | 11:05 AM ET
Tony Avelar | Bloomberg | Getty Images

When Google launched its AdSense network to push advertising to third-party websites, it already had a massively successful advertising business on Google.com.

Facebook hasn't reached that point yet – so it makes sense that it has pulled back from testing third-party advertising to get the basic product right first.

The September announcement that Facebook had started placing advertising in a small number of independent mobile apps appeared to mark the long-awaited arrival of a third-party network. With the hunt for new sources of revenue intensifying, this looked like a promising idea. But it turns out to have been premature.

On Wednesday, Facebook said it was "pausing" the test – though reading between the lines, it doesn't sound like it has any intention of restarting it later, at least not in the same form. "We have learned a lot from this test that will be useful in the future" is usually what companies say when an idea didn't work out and is being abandoned.

This was Facebook's explanation for the decision: "While the results we have seen and the feedback from partners has been positive, our focus is on scaling ads in mobile news feed before ads off of Facebook."

The company's focus has been on attracting big brand dollars, the kind usually spent on TV, rather than tiny banners on mobile devices – hence its rumoured move to introduce video advertising to the newsfeed.

Keeping the attention on first trying to strengthening its core service for advertisers is a reminder of how far Facebook still has to go. As always, the comparison with Google is instructive. The search company only derives around a quarter of its advertising income from third-party sites. But at around $12 billion, that will still be more than twice Facebook's total revenues for this year.

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