Facebook's Widget Middleman

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Plenty of Ad Money to Go Around

Since adopting its open-access policy, Facebook has grown to 35 million active users, up from 8.9 million users in September, 2006 (see BusinessWeek.com, 8/6/07, "Fogeys Flock to Facebook").

Through a partnership with Microsoft (MSFT), Facebook places interactive, poster-like ads on the left and sometimes on the bottom of users' personal pages. The site also sells its own flyer-like ads that can be posted to particular networks, and it places sponsored info in its "news feed" section, which updates users on the recent activity of others in their network. News-feed ads are capped at one per day, says Facebook spokesman Matt Hicks. The company also develops Facebook pages for particular brands and campaigns. But it's not in the business of placing ads on behalf of outside developers. That's where VideoEgg comes in.

Facebook isn't worried about third-party developers cannibalizing demand for its own advertising. There is plenty of money to go around. According to an Aug. 9 report by eMarketer analyst Debra Aho Williamson, advertisers will spend $900 million on social networks this year. By 2011, that number will reach more than $2.5 billion. Facebook and MySpace, the leading social networks, will grab more than 70% of that market, according to Williamson. "Social networking is proving to be a true revenue driver," said Williamson.

Will Users Balk?

While Facebook may be embracing advertising—even when it doesn't directly get a cut—it's not clear that its users will respond favorably to an influx of ads. After all, groups of vocal users have fought changes as seemingly benign as automatically updating friends about their recent activity (see BusinessWeek.com, 9/8/06, "Facebook Learns from Its Fumble"). Such users may not want to listen to more words from their sponsor during their online social time.

Sanchez, for one, isn't worried. He believes that most users understand that the trade-off for a great free service is ads. "It's part of the implicit contract there," says Sanchez. "The ads just have some level of entertainment and engagement value."

Holahan is a writer for BusinessWeek.com in New York.