Facebook and the Future of Targeted Search and Advertising

By Alex Salomon
On May 18, we will likely witness Facebook (FB) rocket to a $100B capitalization. Pretty much every one has an opinion on Facebook and its IPO, even non-investors. And all sorts of discussions abound: the actual valuation of Facebook; its fight against Google (GOOG) and other emerging companies (as Apple’s (AAPL) late, great Steve Jobs would have said, “tomorrow’s Facebook is in someone’s garage right now!”); the monetization of the Internet of things vs. the Internet of people; the acquisition of Instagram by Facebook… and of course, “Like” or not?

It seems that a central fight between Facebook and Google is centered on capturing advertising revenues from people and things. There is a perception that Facebook leads in capturing revenues tailored down to people’s tastes while Google leads in capturing revenues on things being sold. Regardless of the argument (as it is shifting and leadership can be calculated in many subjective and misleading ways), I believe that the Internet of people is about to become a lot smarter.

I am lucky to currently live in St. John, VI and equally lucky to travel a lot. I was recently looking at offers for Mandarin Oriental stays. I toyed with booking a couple of stays on nice promotions and procrastinated a bit, enjoying the varying options. Since then, I have been seeing countless Mandarin Oriental ads on the pages I surf (everything from financial pages to tech stuff to even foreign sites for news and econ. analysis!)… It’s simply amazing!!

This lead me to wonder:  If the Internet of people is real, we shall soon see new evolutions in tailored advertisement similar to the following:

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=> We surf pages and we have “friends” (FB or Google+) recommending us places: “Hey, you looked at Mandarin, I went there, I loved it!”

=> We use social review sites such as Tripadvisor (TRIP), Yelp (YELP), and Amazon.com (AMZN) reviews and instead of scanning through 100s (1000s!) of reviews, our “friends” reviews pop up: “Hey, you’re looking at buying a hairloss product, I bought it, it sucks!” (please let me know when I can truly grow hair back!! haha!)

=> We create filters of “friends alike” to start using reviews on e-commerce sites: sites finally giving us a chance to choose our demographics among the reviewers to closer match our “peer expectations for a better review” (hey, you like Mandarin Oriental… tell us more about you, we’ll find reviewers like you)

Lastly, in that way, monetizing Instagram is possible… easy and worth CPC (cost per click) per picture taken of probably $1B over 1-5-10 years: just create automated filters (like Google Goggles — now, that would be ironic!!) on Instagram pictures and use the pictures as automated filters for future “hey, I am your friend, here’s the picture of Mandarin Oriental Las Vegas: go there, it rocks!”.

Advertising, searches, and filters are bound to become a new way to help us find and buy things and services. It’s only a matter of time before algorithms dig into our social media pages and sort through our friends’ tastes to help us make decisions. Advertising is going to change in ways we have not yet seen: friends, networks, filter for reviews, and for advertising. Instagram and pictures will likely be monetized; it does not matter who leads that change (GOOG+, FB, … or Twitter!!!) but it will happen.

And although it is impossible to predict whether Facebook will remain the biggest name in social media, it is almost a certainty that they will continue to surprise us. They can afford to pay geniuses, and this will only serve to further improve on everything Groupon (GPRN), Yelp, and Travelzoo (TZOO) pioneered.

Prepare yourself. Automated friend/network experience-based advertising/reviewing is coming!!

Postscript (Added 5/18 by Alex Salomon):  Adding pictures, filters, experiences, background algorithms into scooping information relevant for each person’s social network adds the most powerful element to any shopping & social transaction:  EMOTIONS!  Adding an emotional element enriches advertising and could redefine CPCs, revenues, positioning, and campaigns. In my opinion, that is the key behind the next generation of “smart ads”: emotionally-driven ads, because your social network relates to powerful emotions and dominant buying motives (DBMs).


Twitter:  @alex__salomon   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author, Alex Salomon, and do not in any way represent the views or opinions of his employer or any other person or entity.

No position in any of the securities mentioned at the time of publication.