In the first quarter of 2010, Facebook became the largest display advertiser, serving 176.3 billion display ads, versus Yahoo who served 131.6 billion banner ads according to new comScore numbers. The measurement is only of display ads within the company websites, not those included through external networks. As the Wall Street Journal points out, the large reach of Facebook ads has not yet translated into equivalent revenue streams.

While Facebook is expected to generate more than $1 billion in revenue this year, it’s a fraction of the revenue being generated by Yahoo, who earned $6.5 billion last year, much of which came from advertising. The growth of Facebook ads is impressive. As Jessica Vascellaro points out, “Nielsen Co., another measurement firm, found that Facebook’s share of the U.S. display-ad market grew to 20% in April 2010, up from 2% in April 2009.”

While Facebook may not have translated all that traffic into equivalent revenue, there’s no doubt that Facebook is growing their base of businesses using the service. In addition to global corporations who are funding Facebook’s growth, a growing number of small businesses are turning to Facebook for promotional purposes. Performance advertisers and affiliate advertisers have also been pouring money into Facebook Ads as the site’s audience continues to skyrocket.

While Facebook hasn’t publicly stated any recent projections on revenue, we’d expect that the company’s ad revenue will continue to grow, reflecting the massive growth in dominance of display ads on the web.

The new Facebook like button that was rumored to be launched at this year’s f8 will power a new enhanced behavioral ad network according to the Financial Times. As FT states, “data from these interactions would be used to target them with related adverts once they return to Facebook.com”. Details on the system are extremely limited, however we’ll have the full details once announced at Wednesday’s f8 event.

While this form of advertising targeting is used by a number of large ad networks, for Facebook to use this advanced form of targeting will start putting the company in a interesting privacy position. It also sounds as though this could be tied to the new privacy policy that was rolled out recently and has been criticized by numerous privacy advocates.

Facebook has demonstrated a willingness to push the boundaries of user privacy in the past, especially with the launch of Beacon, and it sounds like they may be pushing the boundaries once again. Whatever is being announced, we won’t have to wait long to find out the full details. It’s also important to understand that this information will be based on users clicking on Facebook “Like” buttons, so it requires user action.

Do you care what type of information Facebook collects about you? Do you want more targeted advertisements?

We’ve been receiving messages from users over the past 24 hours that they’ve been granted access to Facebook ad conversion beta test. Last month we covered the beta testing of the Facebook ad conversion tracking tool and now we have access to the implementation guide that Facebook is providing advertisers with.

There are three things that advertisers can keep track of: a user taking some action (the system simply tracks a page load as a conversion), a tag conversion value, and a SKU code. Rather than providing the type of conversion funnel tracking provided through Google Analytics, Facebook is recommending that advertisers use a series of SKU codes for each page on your site.

In other words you will need to do some extensive customization if you want to track the user’s navigation patterns prior to them converting. For any advertiser spending more than a couple hundred dollars on Facebook advertising, being able to track conversions is critical. Ultimately Google Analytics can still be used to track a lot of the conversions thanks to custom variables and the product’s funnels and goals services (learn more here).

While we don’t know Facebook’s official timeframe for rolling out conversion tracking for all users, it’s clear that they want to make this service widely available as soon as possible. The more tools they can provide to advertisers, the more likely advertisers will spend money on their platform. Below is a sample ad conversion tracking report and Facebook’s implementation guide for the product.

Facebook is making a small but profound change to Facebook Ads: “Keywords” will now be known as “Likes and Interests.” The change will be visible in the Facebook Ads interface starting the week of March 8th.  While the change is purely semantic, it gives us a key insight into how Facebook plans to revolutionize online advertising.

Facebook Ads announced the change at SMX West, a leading search engine marketing conference. Brian Boland, Facebook’s Manager of Direct Response Solutions, told AllFacebook that he announced the change early at SMX because of the importance of the paid search community to Facebook. Invented in 2003, paid search is now a 10.7 billion dollar market in the US – representing about half the US online advertising industry (note: “Paid Search” is also known as “PPC” and “CPC” advertising).

Brian’s goal is to differentiate Facebook’s value proposition from paid search advertising on Google, Bing and Yahoo!. Brian says Facebook is encountering “confusion in the market” from advertisers new to Facebook who hear about “keywords” and “CPC pricing”, and assume that advertising on Facebook is just like advertising on Google.

Comparing Facebook and Google Advertising

(As you read this, remember that Google made 35 times as much revenue as Facebook in 2009)

Facebook is changing “Keywords” to “Likes and Interests” to show the fundamental difference between Facebook Ads and Google PPC.

Facebook Ads’ Value

Facebook provides new ways for marketers to target real people in the context of their social graph and social activities.

Google PPC’s Value

Google enables marketers reach people exhibiting specific searching behavior at the exact point in time they voice their “intent” through search terms and query strings.

How Is Facebook Ads Different from Google?

Facebook believes that the Facebook Ads platform enables a more holistic approach to understanding an advertiser’s audience than paid search advertising.

All Facebook users are registered users who provide relatively truthful information about themselves in order to enhance their Facebook experience. Facebook uses this profile data to help marketers “hypertarget” very specific audiences.

With Google, only a small percentage of people who click on PPC ads are registered with the search engine. As a result, Google and its advertisers must rely on observable behavior, in the form of keywords, in order to target users.

Keywords, so central to Google’s business, are just one facet of the targeting abilities of Facebook Ads interface:

What Are Keywords on Facebook?

Facebook Ads uses an algorithm to generate keywords that describe Facebook users and that can be used to group users into audience segments. Think of these keywords like a “tag cloud” of terms Facebook generates as a tool to help advertisers understand and reach Facebook users. This contrast with a “search query string” in Goolge PPC campaigns, words that you are hoping users will type into a search box.

These two concepts are not mutually exclusive, as 1) Facebook allows you to use any keywords, not just the ones their platform generates for you and 2) Google allows you to do “broad matches”, where they serve ads on query strings that do not exactly match the terms you place bids on.

To be clear, the “Keywords” described above will be known as “Likes and Interests” in the future.

CPC Campaigns Are Performing on Facebook

SEM pros are cleaning up on Facebook right now. SEM professionals are achieving significant results on the Facebook platform by applying the keyword bidding expertise they learned on Google, Bing and Yahoo!

I heard stories about performance marketing campaigns that buy Facebook keywords at 1/3 the price paid for the same keywords on other search marketing platforms.

Facebook Ads Case Study – Avenue100 CPC Campaign

Addie Conner, VP of Advertising at Avenue100 Media Solutions, wowed the audience when she spoke on Brian’s panel at SMX.

Addie ran Facebook Ads campaigns in January that served ads to 57,609,536 unique users an average of approx 56 times for a total impression volume of 3,223,537,980 impressions. For a specific product/ ad group within her campaign, Addie achieved up to120% difference in unique CTR , a 101% difference in conversion rate and a 456% difference in margin - compared to similar campaigns she runs with search engines.

Addie believes that advertising on Facebook is fundamentally different from Google, Yahoo! and Bing. Addie said her success results from embracing the unique targeting capabilities of Facebook Ads, not from simply extending the paid search discipline onto theFacebook platform.

Are Search Marketers Drinking the Facebook Kool-Aid?

Most top search marketers I talked to rolled their eyes when I asked them about Facebook Ads changing “Keywords” to “Likes and Interests”. SEM pros are experts at achieving results at scale, profitably spending millions of dollars across millions of search term keywords every month. Its clear that the unique value proposition of Facebook is not yet causing a major rethink of methods in the the 20+ billion dollar search industry.

Facebook Working with the Paid Search Industry

Facebook’s speakers at SMX West, Brian Boland and Jon Fougner, were clear that Facebook is looking to search marketers for guidance on how to best develop the Facebook Ads platform.

Brian is a new addition to the Facebook Ads team, and looks like a great choice to help sophisticated search marketers use Facebook Ads in tandem with Bing PPC to achieve results on Facebook.  Brian handles the Direct Response Channel for Facebook, and DR advertisers rely heavily on PPC campaigns to achieve their ROI goals.  Also, Brian’s last job was managing Microsoft’s SEM product, AdCenter.  Microsoft’s search platform, Bing, handles searches and PPC advertising within the “web results” returned for searches on Facebook.

When we talked, Brian expressed a deep appreciation for the sophisticated analytics SEM professional use to hone campaign performance at scale. Brian said he is working closely with the paid search industry, and that the Facebook Ads product is evolving positively as a result.

Will Facebook be the Next Google for the Ad Industry?

Facebook hopes that a holistic approach to social graph targeting will redefine online advertising.

Facebook and Google reinvented the businesses they dominate. It follows that Facebook should have a similar chance as Google did to revolutionize online advertising.

Only time will tell if Facebook and social ads will have a comparable impact and revenue footprint to Google and paid search.

In the meantime, we wish you success when running Keyword based – wait, I mean “Likes and Interests based” campaigns on Facebook!

Facebook has officially begun rolling out the beta version of their ad conversion tracking tool to a small group of advertisers on the site. As Facebook describes the service, “Conversion tracking allows you to track activity that happens on your website as a result of someone on Facebook seeing or clicking your Facebook Ad.” It’s a feature which Google has offered within their Analytics and Adwords product for sometime now, and Facebook is finally beginning to roll it out for their advertisers.

The new service, which is pictured below, is pretty straight-forward. Advertisers can assign a specific value to an action on their website. The result is that you can effectively determine the ROI of your Facebook advertising campaigns. While we’ve been looking for Facebook to provide similar conversion metrics for Facebook Page administrators, this is a great start for providing greater insight into ad campaigns.

While we’re expecting Facebook to roll-out the new conversion tracking tool to all advertisers in the near future, Facebook is continuing to test out the service among a small group of Facebook advertisers. While we don’t yet know how the reports will looks, this will save a lot of time for advertisers who currently need to dump their data into spreadsheets and cross-reference that data when tracking ad spend ROI (return on investment).

Are you one of the few advertisers who can currently test the ad conversion tool?

Thanks to Sam Goldfarb of Tradimax for the tip!