The Advertising Opportunity in Facebook Places

On Wednesday Facebook announced its long-awaited location feature, Facebook Places. Places will let people share where they are, find friends in the same location and learn more about new places. For now, advertising isn’t part of the Places rollout. Facebook, smartly, is getting people used to the idea of checking in before introducing marketing into the equation. But sooner rather than later, Places will allow marketers to target people who check in with relevant advertising. In fact, there is already a FAQ page for advertisers interested in promoting their Facebook Place by using Facebook’s existing ad system.

Places represents another step toward what I believe is the future of marketing: delivering offers and information to consumers at the moment they need it, before they even think to look for a coupon or perform a search.

Why location is important to Facebook:
Facebook’s value as a business comes from all the bits of information it gleans about its users from their daily activities. Every single action people take—whether it’s writing a status update, posting a photo, commenting on a friend’s post, liking a marketer’s message or playing a game—becomes an object in Facebook’s database.

Location is a type of data that is very compelling because it provides additional context for the actions people take on Facebook. If I check in at a restaurant or business, I will be able to see which of my friends are there now, or have checked in in the past. And if they left any tips or advice, I can see those. It helps me make a more informed decision about the business, and at the same time it gives the business feedback about who is visiting and what they are saying.

Right now, checking in is a fairly niche activity. Places will introduce a lot more people to the concept. Facebook has already shown that it can drive big changes in people’s behavior—just look at the popularity of status updates. Checking in is another one of those behaviors that Facebook can easily push toward mass acceptance.

Why location services make sense for marketers:
Marketers want to reach consumers when they are close to making a purchase. Location services enable them to deliver a compelling offer or reward when consumers are at the point of decision. This is very powerful.

Location services are part of the future of marketing. Companies will be able to discern what consumers are interested in and deliver helpful advertising and compelling offers before consumers ever need to type a query in a search box.

Imagine escaping your office at noon on a Monday, and instead of trying to decide which sandwich spot to visit today, you instead receive an offer on your mobile phone from a restaurant just down the block. Or perhaps you’re trying on shoes at Macy’s in the local mall. You might someday receive a coupon from Nordstrom offering a 20% discount in their shoe department.

If ads can be pushed to people in the moment they are engaged with something, rather than waiting until they take action and start a search, the ads become very very powerful.

The Facebook Places ad opportunity:
Location will give Facebook a new way to target and sell advertising. Mobile hasn’t been a part of Facebook’s ad offerings until now, but that will change. By offering ways for marketers to target Facebook users not only on the online service but also when they are on the go and using Facebook on their mobile phones, it opens up all-new avenues for interaction. In particular, Places gives local businesses a great reason to advertise on Facebook. Many of them already have a Facebook Page; by creating a new Facebook Place (essentially a page where people can check in and see who else they know who has checked in), businesses can give customers “the power to tell their friends about your business,” as the Places advertising FAQ says.

Right now Facebook derives nearly all of its revenue from advertising on its Website. We forecast that marketers will spend $1.3 billion worldwide to advertise on Facebook in 2010, and $1.7 billion in 2011.

The 2010 figure does not include mobile advertising, and it’s hard to say at this point how much of the expected $1.7 billion in ad spending next year might come through the mobile channel. But because location gives advertisers yet another way to target consumers, I expect that marketers will be very interested in Facebook’s capabilities in this area. Marketers are already clamoring to work with foursquare, Shopkick and other startups that offer check-ins. The Facebook opportunity will be very compelling to explore.