The Man Who Revs Facebook’s Money Engine

From Wired:

Gokul Rajaram is a patient man. Which is fortunate, because the Facebook advertising product director has a lot of teaching to do.

Outsiders can’t seem to wrap their heads around how Rajaram’s technologies are going to generate profits for his employer. Wall Street in particular seems nervous as Facebook prepares to publicly report its quarterly earnings for the first time today.

But Rajaram takes a longer view. He’s been focused on advertising tech for 15 years, ever since he joined the free modem-service provider Juno after the birth of the first banner ad. If you take a deep breath and enter Rajaram’s poorly understood world, ad jargon like “CPC,” “remarketing,” and “consideration set” fades into the background, and you start to understand his rational, even compelling story about how Facebook can sell things to its users.

The gist of Rajaram’s message is that our lives are consumed by purchase decisions, more than we might care to admit. Look at all the product shots on display at Pinterest, Tumblr, and Twitter. Or just skim your Facebook news feed for brand names like, say, Netflix, or Nexus, or Apple, or “Downton Abbey”. “I will see just a lot of my friends’ stuff where they’re talking about a brand,” Rajaram says.

Facebook’s advertising mission, then, is not to inject commercial messages into social discussions, but to amplify the messages that are already there. And it’s not to drive immediate purchases, as Google’s contextual advertising does, but to influence buying decisions a little further down the road.

Rajaram refers to the stage in the days or weeks before a purchase as “mid-funnel.” To understand mid funnel is to understand the potential value of Facebook-style advertising. To be ignorant or dismissive of it is to be where Wall Street is right now.

“The perfect example of lower funnel is search,” says Rajaram, who helped manage Google’s AdSense ad network for four years. “You have intent to buy a specific thing, you’re searching for that thing, you find something that matches that, and you go and buy it immediately. Upper-funnel is when you have something like an automobile, which you buy once every seven years, but during those seven years you are, through a bunch of conscious and unconscious interactions, making up your mind about what automobile to buy.”

“Mid-funnel is where, based on seeing a marketer’s message, you don’t take an action immediately, but you do something that then compels you to take action. Direct mail catalogs are a good example of that. When you get a piece of direct mail in your mailbox, but you probably go a few days later to the store — say Bed, Bath and Beyond — and buy it.”

Continue reading the rest of the story on Wired