Google And Twitter Are Stealing A Huge Piece Of Business From Facebook

Facebook has built an $8 billion business (at $2 billion in revenue per quarter) but it's mostly based on just one thing: Showing people ads inside Facebook. Even though Facebook has peppered the web with its "Like" and "Recommend" buttons, the company hasn't used them for advertising purposes outside the Facebook platform.

That's likely to change, two of Facebook's advertising clients tell us, especially now that both Google and Twitter have launched similar efforts.

The pressure for Facebook to come up with an external ad network is building, in other words.

Until recently, Facebook was "King of the Logins": People log in to Facebook, and - especially on their mobile devices - never log out. This "real identity" login data is huge for advertisers: They know when they buy ads exactly who is seeing them. But they only see those ads inside Facebook.

Compare that to what Google and Twitter are now doing:

• Google just turned the entire web into a Facebook-like advertising platform: Google just launched +Post ads, which allow advertisers to turn their Google+ posts into ads that show up on any web site that's part of Google's display ad network - that's about 2 million web sites. Google's terms of service also now allow it to use your Google+ content as part of those ads, in much the same way your Likes get used for advertising targeting your friends on Facebook.
• Twitter is doing the same thing: Twitter also just launched a retargeting network that will use your Twitter login as a signal to generate ads on mobile apps and desktop web sites outside Twitter. The same principle is at work - once people login to their Twitter account, they forget to log out. That login data remains available even as they surf the web and use other apps.

Facebook doesn't have any current plans to launch an external ad network - in which ads would be triggered on other web sites by your Facebook login - yet.

That's a hole in Facebook's business, and Google and Twitter are marching happily into it.

Facebook has begun experimenting with targeting people inside other mobile apps using the Facebook login. But that's only a test. And, we're told, Facebook runs some ads on Zynga's web site that use the Facebook login for targeting. But generally, Facebook has little to offer advertisers "off-platform."

Nonetheless advertisers expect Facebook to build an off-platform ad offering as a next logical step.

They're especially interested in what Facebook will eventually do with its Atlas ad server, the giant back-end adtech business it bought from Microsoft. Currently, Facebook is only using it to generate data comparing ad campaign performance.

Facebook declined to comment when Business Insider asked it whether an ad network was in the offing. But it's such an obvious next step for Facebook that it would be a surprise if Facebook wasn't working on it in the long-term.

"The long-term value is outside the walls of Facebook," SHIFT CEO James Borow tells us. Shift is a Facebook ads partner. "Facebook will change the way advertising works if they embrace that."

Jan Rezab, CEO of social media analytics company SocialBakers, another Facebook marketing partner, thinks that Facebook-driven third-party advertising could be bigger than Google.

Google is selling $15 billion per quarter in third-party ads, but most of those are driven by keyword searches and tracking cookies. Using a person's likes and interests from Facebook could be more valuable, Rezab tells us. "I believe it will be more effective, more relevant. It's what I would do if I were them. They would be stupid not to."

Disclosure: The author owns stock in both Facebook and Google.