The social graph and advertising

It’s not “what you know” but “who you know”. The old cliche’ is being modified a bit by Facebook’s social graph concept. The social graph is more about “what people around you know”. I’ve been trying to wrap my arms around the term Mark Zukerberg put forth. What I am able to glean thus far is two components to social networks. The first and most common is the Linked-In concept of being connected directly to people you know and who they might know. This mirrors the six degrees of Kevin Bacon concept. The second social graph concept is a bit more analytical by culling through the 40 million user base and identifying sub-networks and social connections from the registered masses. These connections are based on geography, industry, skill-sets, common interests, goals etc. Much the same way Google can index and make a sitemap of any given website, Facebook is capable of doing a social index and sitemap among its’ 40 million users that are being crawled to define the social graph. A combination of user’s social and private information is made into categories topics and buckets based on any number of analytical social parameters. this allows one to socially interact with like-kind, like-minded and like-proximity people at break-neck speed, essentially doubling and tripling one’s possible network connections. Sounds awesome right? Now comes the fun part…

Targeted Advertising…rather than using contextual based advertising that Google so deftly conquered, Facebook has the ability to serve up highly relevant ads based on categorized or tagged social connections. Imagine a geography of Boston in an industry of musicians that have a tendency for goth and grunge interest. Bingo an advertiser would pay a premium well beyond the normal CPM to have access to a targeted group of users like that. Look at John Battelle’s Federated Media (FM) and how the premium price paid verse other blogs is worth the price of admission for the targeted audience it serves. This is obviously only one of many possibilities when an entity such as Facebook has command of 40 million interacting users. Just think, a 30 second spot on network television during the superbowl runs 1-2 million bucks for a very general untargeted spot aimed at roughly the same number of users (and growing) registered on Facebook. The concept resonates with the early 90s song “things that make you go hmmm”.

I may eat my words of “overvalued at $15 billion” based on the previous thoughts, but the proof will be in the pudding and Facebook needs a better hook to get out of the $200 million a year realm of revenue. But with Microsoft and NY hedgefunds diving in, anything is possible. It will be fun to watch.