“It might be nice in the future to get some ads going to offset the cost of the servers,” Facebook found Mark Zuckerberg told The Harvard Crimson on March 1, 2004. Boy, was that an understatement.

It’s difficult to track down exactly when the first Facebook advertisement launched, but in 2006, Facebook signed a contract with Microsoft that gave Microsoft exclusive rights to buy and sell banner ads and sponsored links on Facebook. (Flashback: Myspace was still the social king at the time and had just signed a similar agreement with Google.)

If we look back at one of Facebook’s first revenue slides, we can see that there has been a steady increase in the company’s revenue since 2010 (little to no data is available prior to this):

revenue

The drivers of this growth break down into two broad buckets: improved ads and improved targeting. Let’s take a look at the evolution of each.

As ad types evolve, so does revenue

The original banner ads were pretty unattractive. They took up a chunk of the left hand-side of your screen, and they were busy. Imagine the space currently devoted to right-hand side ads, and replace that with one large banner ad with graphics and words designed to call out to college students (this is still a time when Facebook was available to only a select few universities). Clearly the 20% text rule had not yet been put into place.

Flash forward to the most recent earnings call, and we learn that Facebook accrued a whopping $2.5 billion in revenue. The question, though, is what got this company to that level at such a rapid pace? Let’s take a quick look at some of what I consider to be the major improvements to Facebook ads.

After that left-hand tirade, Facebook began running ads on the right-hand side. Nothing special, but they looked better than what had been done before. Targeting was no longer limited to just colleges. Interests came into play fairly quickly.

The next step was to launch ads in the News Feed. This is, arguably, the most visited place on the Internet. With 1.28 billion monthly active users, this is the most popular place on Facebook to run an ad. It is also considerably more expensive than the right-hand side.

For a long while, photo posts were the top Facebook ad unit: a nice, clean, image with some post text and a bitly link sending users off of Facebook. Link posts were also popular, but they were pretty unattractive; they contained a small image and a bunch of text. More importantly, they looked like ads, while the photo posts blended in nicely with the rest of the News Feed.

Just this past September, however, Facebook relaunched their link post ad unit. Now the link post contains a large graphic, similar to the photo post, that sends users directly to an off-Facebook landing page when clicked.

Of course, this is a very shortened version of Facebook ad units. I completely skipped over sponsored stories, video ads, offer ads, event ads, mobile app installs…the list goes on. That being said, the quick synopsis above tells how Facebook became a viable marketing option for companies looking to do direct response ads on Facebook. More importantly, it explains one key aspect of how Facebook was able to nearly double its revenue from Q2 ’12 to Q2 ’14.

Targeting improvements take shape

Alongside these improved ad units came another critical advancement: even more improved targeting. Let’s look at a few of the most significant releases of the past couple of years.

Interest targeting allowed users to target audiences based on what they were saying on Facebook, as well as the Pages they liked. This is, in my opinion, the first key targeting option available on Facebook.  Moving forward, Facebook introduced Custom Audiences. We can now target users who look just like our ideal audience (tip: when creating a lookalike audience, try to keep it to a minimum of 10k emails; the more the better.).

There are tons of variations you can use with Custom Audiences – you can target a similar reach (top 1% of users that look like your list) or a greater reach (top 5% of users that look like your audience), layer these audiences in with precise interests, target a list of users without any sort of manipulation (emails of cart abandonment, email subscribers who haven’t converted, etc.).

Partner Categories came next. We were able to target people based on their off-Facebook habits. Partner Categories, which are constantly being refreshed, allow advertisers to hit niche audiences that may be difficult to target to otherwise (example: users likely to buy a used mini-van in the next 6 months).

The next big targeting option — Website Custom Audiences – was released very recently. You can now retarget people who have visited your website through Facebook’s Ads Platform. Previously, advertisers had to use third-party technologies to take advantage of the Facebook Exchange. Now, anyone who advertises on Facebook can retarget their audiences.

What’s next?

Facebook has not started to slow down its advertising; they continue to make it more and more dynamic. New ad units and/or refreshed ad units are always becoming available (a new right-hand side ad will be launching this quarter), and targeting continues to get more precise (just recently, Facebook has allowed users to begin targeting the Hispanic community as either primarily Spanish Speaking, Primarily English Speaking, or Bilingual).

I look forward to watching what Facebook has to offer in the coming months. My guess is that we will see some changes on mobile ad units, as we know mobile has been a huge performer for Facebook over the last few quarters. Hopefully we can also plan to see improved reporting.

What changes are you most interested in seeing?

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Molly McCarty
Molly joined 3Q Digital in April of 2013 after working as a marketing and social strategist for a web development firm in Washington DC. Molly has experience with online advertising for members of Congress, as well as small businesses. She graduated from St Olaf College in Northfield, MN, in May of 2012 with degrees in Political Science and Social Studies Education. When she is not working, you can find Molly walking her dog or trying out new restaurants.