Joseph Perla, a blogger, posited recently that Facebook is a Ponzi scheme because according to him, its huge ad revenues were based on selling a product that "yields no real value, and thus no profits" to an increasingly small market of advertisers.

I disagree completely with that argument and here's why.

Context

First of all, a bit of context. eMarketer has just published a report which estimates that Facebook took in $1.86  billion in global ad revenue in 2010, which is 2.5 times its 2009 estimate ad revenue.

Furthermore, as shown below, the company's share of global online ad spend has tripled since 2009, with revenues coming from a broad spectrum of advertisers ranging from major marketers such as Coca-cola, Procter & Gamble, and AT&T to small businesses such as restaurants, auto mechanics, and small websites.

A huge chunk of that money is coming through Facebook Ads, the company's self-service advertising system. A runaway success, to say the least.

Analysis

Ok so Facebook Ads is making a tonne of money. The next question is – why?

According to the company, the principal benefit of advertising with Facebook is an opportunity to establish a connection with a highly targeted demographic to whom your message is highly relevant.

Simply put, Facebook's job is to create that connection whilst your job as a marketer is to send a highly relevant message. If either of the two fails, your campaign is toast.

Let me explain that from another angle.

Facebook Ads will get you in front of a highly targeted audience (because it has a lot of information about its users) but once the stage lights are on you (or more accurately, your itty bitty text+image ad), you must perform. Dance baby, dance.

Success isn't going to be based on witty text, more prominent call-to-actions, or clever images. In contrast, success with Facebook Ads is going to be all about thoroughly understanding the mindset, emotions and disposition of the user and making the most out of that temporary connection.

Coca-cola understands this well with its focus on brand awareness, and so does Match.com and the thousands of other direct response advertisers who are pleased with the service.

I'm a big believer in the potential of self-service ad systems. Heck, we even built a fast-growing business around that concept. To me, Facebook Ads has nailed the two key success factors of a self-service ad system.

1. Ease of use – by making it dead easy for practically any business to advertise, and
2. Targeting – by integrating its huge database of demographic and behavioural info with a highly intelligent system of ad servers.

I think the point where many marketers go wrong is when they just see users as "eyeballs" to whom you can show any old generic message and hope to attract 1%. That's just plain wrong. If your target base is too broad, the chances that your message will fall flat just increases exponentially.

Put in another way, you don't have to target 10,000,000 users in order to create a good campaign. Get it down to less than a million (or even less), and put in a good bid price. You may end up paying more per click or impression but the chances that the audience will interact positively with your ad (directly or subliminally) are much higher.

Summary

So whilst it is true that some advertisers aren't making money from their Facebook ad campaigns, the fact is many others are doing perfectly well. It's simply a case that some advertisers know how to target their audience and deliver the right message whilst others don't.

The ones that are currently getting it right will only get better, and just like with SEO, others will learn the best practices and play catchup. The same thing happened when AdWords launched. Some people got it right, whilst others didn't.

So back to Facebook. Their role is simply that of a connector. One that's bloody good at its job and has an increasing amount of resources on which to get better.

With revenues and profits at an all-time high, fantastic technology under its belt, surrounded by an ever larger ecosystem of businesses that depend on it, it's going to be hard to bet against it.

Facebook might be many things but a Ponzi scheme, it is not.

Related posts:

1. The login screen now supports Facebook, Twitter, Google, Yahoo and more
2. How to Set Your Ad Prices Via a Real-time Auction Like Google and Facebook

This is the first part of the How to Sell Ads Online series.

You need to make sure you have something to sell. Your product is your audience so you need to clearly define who they are and why they are a right fit for advertisers.

Ideally, you should also have the ad targeting technology that will help advertisers reach specific groups of people.

Facebook

Facebook has been really successful with this. Its Facebook Ads was launched after the social network had reached critical mass. It had a robust social graph and tonnes of information on who its users were and what they were interested in.

Crucially though, it had also built the technology that could help advertisers segment the huge traffic, and reach specific interest groups.

Critical Mass

How do you know if you’ve reached critical mass? There isn’t a magic number. Frankly, the better you are in segmenting your audience into specific niches, the more effective your sales pitch will be.

Don't worry, if advertisers were only interested in raw, unfiltered traffic, they’ll all be bidding on ad exchanges. See Mediapost's view on why today's ad exchanges are not working.

Know your niche

The value has always been in the niche so it doesn’t matter if you only have 100,000 hits a month from 20,000 users. If those users are female, 18-30, living in Wisconsin and interested in soccer, then there’s an advertiser for that!

You may find that you have just one niche or multiple niches in your traffic. Segment them into marketable blocks and pitch them separately. There is more on segmenting your traffic later.

Placement, Placement, Placement

Another important part of pitching the right product is the location and ad placements. Make sure you have visible ad zones in prominent spaces. Top right and top center are pretty good spots.

Action Points

1. Do an audit on your traffic. Get to know them, who they are, where they are from, and what their interests are.
2. Reduce clutter and sell visible ad zones.

Effect

1. Your site (and its audience) becomes clearly differentiated from the millions of sites on the web.
2. By reducing the number of sites that “are look like you” to advertisers, you can stimulate demand, and ultimately command higher prices.

Related posts:

1. How to Sell Ads Online > Show Detailed Traffic Statistics (4/7)
2. How to Sell Ads Online
3. How to Sell Ads Online > Hire a Dedicated Sales Person (2/7)

Anyone can now sign into any Trafficspaces ad platform with a Facebook, Twitter, Google/Gmail, Yahoo, AOL, or Blogger account. Yep, that’s right – advertisers no longer need to fill a signup form.

This feature has been on our todo list for over 4 months, and was constantly postponed and postponed again until we finally got our act together and implemented it.

It is ridiculously simple to use. For example if an advertiser has a Facebook account, they just need to click on the Facebook logo and they’ll be redirected to Facebook to login and connect their account to your ad platform. No passwords, no forms. That’s all it is. They are logged in – as simple as A-B-C.

It makes it easy for advertisers to get started so you won’t lose any potential advertiser because of the pain of filling yet another sign up form.

Go on, try it out in the demo. Kudos to RPX for helping us make it possible.

Related posts:

1. How to Set Your Ad Prices Via a Real-time Auction Like Google and Facebook
2. OpenX vs Google Ad Manager – Which is better?
3. Google Ad Manager vs OpenX vs Trafficspaces

As most of you already know, we launched Trafficspaces to give publishers more control on how to manage their ad inventory. Since then, we have received tons of emails about our free 7 day trial and suggestions on how to make the platform serve you better.

We’ve been asked frequently to provide a free version of the platform and we are happy to say it is finally here.  The Free package is designed for those of you who prefer extending the trial further than 7 days.

As many can testify, having your own customized ad managing platform allows you to

• keep 100% of your ad sales,
• develop a closer and trusting relationship with your advertisers.

It is a win-win game. You get to keep 100% of your ad revenue and provide your advertisers will with an easy-to-use branded ad manager. You’ll build a strong relationship with them which encourage them to continue buying advertising from you.

So what are you waiting for? Try the free package today and let us know what you think.

Related posts:

1. Techcrunch Switches to Self-Service Ad Platform and Validates Trafficspaces’ Business Model.
2. The Trafficspaces Business Model Explained
3. Trafficspaces Exits Stealth Mode

Chris Petersen has a successful blog. He generates millions of page views monthly, which he currently monetizes with Google AdSense and a couple of other ad networks.

He also gets about 10 – 20 emails from advertisers every day. Requests range from “Send me your price list (or rate card in advertising lingo)” to “Can we get a 40% discount if we commit to advertising for 6 months”.

Poor (and I use that term lightly) Chris just wants to write content so he does a quick search on Google, and discovers a little tool called Trafficspaces. Great. Now, advertisers can just book their ads online and get their discounts automatically. Problem solved. Err, no.

It turns out that Chris doesn’t really know what price to sell his ad spaces – $10CPM for the home page leaderboard?, $0.10 per click for the text ads near the footer? To compound the problem, it turns out that his advertisers all have different opinions on what the “right price” is.

Solution – use an auction. Duh! Google does it, Facebook does it. Of course, it makes sense. Why didn’t I think of that before.

This story is pretty common, so we’ve added auction-based pricing to Trafficspaces.

Here is how it works:

1. You set up your minimum price, and the incremental amounts that advertisers are allowed to bid.

2. At checkout, the advertiser specifies their budget and their max bid price

3. For every impression that is served, the ad server runs an auction and the ad with the best bid and performance wins. Simple.

Now you have the elegance of Facebook and Google Auctions for a fraction of its price.

Related posts:

1. The login screen now supports Facebook, Twitter, Google, Yahoo and more
2. How to Sell Ads Online > Let the Market Determine the Price via an Auction (6/7)
3. OpenX vs Google Ad Manager – Which is better?