Facebook: Five things to watch for in 2013

A new ad network and more ways to sell you things through your phone are among the developments you should expect to see in the coming year.

Paul Sloan Former Editor
Paul Sloan is editor in chief of CNET News. Before joining CNET, he had been a San Francisco-based correspondent for Fortune magazine, an editor at large for Business 2.0 magazine, and a senior producer for CNN. When his fingers aren't on a keyboard, they're usually on a guitar. Email him here.
Paul Sloan
6 min read
Facebook's Mark Zuckerberg Paul Sloan
Mark Zuckerberg has built the world's largest startup. His is a giant company, for sure -- $5 billion-plus in revenue, a stock market value around $60 billion -- but it's as nimble as they come. Its engineers push out products and features at a near-constant pace, emboldened by posters around Facebook's campus that read, "Move fast and break things."

Zuckerberg, too, moves fast when he wants. He's even structured the company so that he can make huge decisions without his board's approval, and he hasn't hesitated to do just that. His surprise purchase of Instagram in April is exhibit A.

While 2013 might see another big acquisition -- a run at Yelp or Pinterest, say, or some hot startup that suddenly has too much traction for Zuckerberg to ignore -- that's not the path the company is on. Instead, it'll keep scooping up smaller companies. And given all the changes that occurred in 2012 -- a range of new ad products, the rollout of Facebook Gifts, closing the Instagram deal, and, oh, that big IPO that helped set the we-need-to-make money mindset -- much of what happens next year seems somewhat predictable. Here are five things to look for:

1. Cashing in on your location
Facebook, as Zuckerberg and his team like to remind the world, is all about mobile now. While Facebook's mobile revenue, which mostly comes from so-called Sponsored Stories, is growing, there clearly are opportunities beyond ads as Facebook strives to better make sense (and cents) of all your data.

First up: Sending you offers to restaurants or stores based on your location. Last spring, Facebook bought a startup called Tagtile, a mobile-based customer loyalty business that offers local merchants a device for customers to tap on with their phone when they check out. Facebook already let's merchants offers deals via Facebook Offers. Putting this all together is the next logical next step so Facebook could, for instance, notify you of a deal at nearby store it knows you "Like."

Facebook's Nearby feature Facebook

In mid-December, in fact, Facebook took a big step in this direction. It rolled out a major revamp of its "Nearby" feature for iOS and Android devices so that the apps show you local hotspots based on 'Likes', check-ins, and recommendations of your friends. In a blog post about Nearby, Facebook says it has a long way to go, and making this all useful is harder than it seems, particularly if Facebook starts to work in coupons or promotions.

Facebook might, for example, offer you a deal for a restaurant you "like," but it would be a lot better if it also knew if you were hungry. Or if you had time to eat. As Sam Lessin, Facebook's product director, put it in an interview with CNET: "You don't want to hear from all the companies that want to reach you."

2. A Yelp-like rating system
Facebook should buy Yelp. Facebook's market value is about 50 times that of Yelp's, so money wouldn't be the issue. But takeover talk aside, the reasoning is this: Facebook needs a rating service, similar to that of Yelp or TripAdisor, to help it parse what might interest a user, as I mentioned in the item above. And the roll-out of Nearby is a direct shot at Yelp and Foursquare.

Facebook's "Likes" give Facebook helpful data, as do check-ins and shares. But it needs more useful data. And full-on Yelp-like rating system would give Facebook additional structured data upon which to build. Plus, adding this sort of system -- and it seems it's building it, not buying it -- would boost Facebook's search ambitions. We learned about those in September when Zuckerberg told the world he has a team working on search. Facebook's version of social search will begin to emerge in 2013.

3. The Instagram bonanza
The folks at Facebook/Instagram ended 2012 with quite the firestorm, after rewriting their terms of service to allow Instagram to sell your photos. A rapid backlash forced Instagram to quickly pledge to rework the whole policy.

Even so, Facebook will get through this mess. And even if a few million users bolt -- Flickr and others are trying hard to lure them away -- Instagram, which now boasts more than 100 million members, will probably weather it handily. Its growth has been so strong that people are no longer talking about Instagram's steep price tag, which got cut by a cool $285 million or so due to Facebook's sagging stock price. The deal made strategic sense for Facebook to jump start its mobile efforts.

Instagram will become a big revenue driver for Facebook, even without selling your vacation photos to advertisers. Now that Facebook is pooling data it collects via Instagram with what collects from Facebook itself -- something that happened based on a policy change in December -- expect Facebook to amp up all sorts of cash-making tactics.

The future of Facebook
Watch this: The future of Facebook

The most obvious way is ads. Facebook needs to tread carefully so as not to annoy users, but some analysts expect Instagram to generate as much as $700 million in ads over the next three years, an effort we will see beginning in 2013. What kind of ads? That's unclear, but Facebook isn't going to start taking over your the screen on your phone.

Another possible opportunity would be to sell Shutterfly type products and services. The company could also start tapping into your activity on Instagram to target offers or ads to you on Facebook itself. So if you're taking photos from ski mountains, Facebook could start sending you offers for discounts at ski resorts. A basic example, for sure, but it illustrates how the data from Instagram should help as Facebook tries to make its platform more personal, lucrative and -- it hopes -- free from controversy.

4. Facebook's ads go... everywhere
File this under boring but big. Facebook will launch -- possibly in stages, and possibly all at once -- an ad network that lets the company sell ads outside of Facebook. This has been talked about for a while, but the financial pressure is on and 2013 will be the year this goes big. Facebook is already plugged into tons of Web sites through Facebook Connect, and each time people share or like items on a site, Facebook's data trove gets a little bigger. Facebook can connect that data with the data from within Facebook -- the social graph -- to create a social ad network that competes with Google's AdSense.

It's already taking steps toward this. While Facebook just put its fledgling mobile ad network, which sells ads that appear on apps or mobile sites you visit outside of Facebook, on hold, it will surely start it up again soon. And remember, Facebook is reportedly in talks to buy Microsoft's Atlas ad platform, which helps advertisers buy and manage ads across the Web.

Facebook executives have been quiet on this topic, but it's a logical way for the company to expand its business without cluttering up Facebook itself. And a third-party ad network could become a multibillion-dollar business. "This is a big opportunity and definitely on the list of to-dos," said Colin Sebastian, an analyst with Robert W. Baird & Co. "It's a matter of when they think the platform is ready and they're comfortable with privacy issues. The minute people go to other sites and see ads that look like they're coming from Facebook, alarm bells go off. They have to go into this slowly."

So, yes, there's a good chance Facebook will again stumble when it comes to privacy concerns.

5. Facebook, the shopping network
Well, not quite. But Facebook Gifts, launched in the fall, is a big step that will mark the beginning of Facebook's steady march into commerce. Facebook isn't about to take on Amazon.com's core business, and the big companies, such as Walmart, don't need Facebook to drive traffic and certainly won't want to pay the Facebook toll. But small and mid-sized companies will find this a terrific way to their wares, and even if a small percentage of a billion users send gifts, that will add up to a lot.

This was one of Facebook's smartest moves in 2012, and 2013 will bear that out, especially when Facebook rolls Gifts out internationally. By the end of 2013, the vast majority of gift-giving will occur through Facebook's mobile apps. The best part: Gifts are not ads. Despite the claims to the contrary by Facebook execs, I suspect users are getting fed up of seeing clutter their phone screens.