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Facebook Tries to Woo Marketers
Jessica E. Vascellaro
The Wall Street Journal
November 11th, 2008
Firm's 'Engagement Ads' Amplify Its Push to Curry Favor
With Madison Avenue
Despite its surging Internet audience, Facebook Inc. has
yet to prove it can wring steady revenue out of
advertisers. Now it’s trying a new tactic to woo Madison
Avenue.
The Palo Alto, Calif., company is rolling out a new ad
format called “engagement ads” that further blurs the
line between marketing and social networking.
The new ads appear on the main screen when a person
first logs in to Facebook. They prompt a user to do
something within the ad, such as comment on a movie
trailer or RSVP for the season finale of a TV show.
If the user completes the action, such as adding Bravo
TV’s “Project Runway” show to a personal list of events,
Facebook tries to get Bravo’s ad in front of more
eyeballs by sharing a notice about what the user has
done with their friends.
Facebook has a lot to prove with the new ad format,
which it began quietly testing in August and started
making available to all advertisers this month. The
company says 70 of the U.S.’s 100 largest advertisers
have advertised on its site since 2007. But its share of
total number of U.S. online display ad views was just
1.1%, according to market research firm comScore Inc.,
in its most recent report in June.
News Corp.’s Fox Interactive Media Unit, which includes
rival MySpace.com, is the market leader with 15.9% of
display-ad spending, according to comScore. News Corp.
also owns Dow Jones & Co., publisher of The Wall Street
Journal.
“I haven’t heard of anyone purchasing something off an
ad on Facebook,” says Angie Tulgetske, vice president of
RE/MAX Preferred Choice Properties, which resells
timeshares and spends thousands of dollars a month on
search ads but avoids social-networking sites. “I
wouldn’t think any of my marketing dollars would be
spent advantageously there.”
Facebook’s new push also comes as economic turbulence
hits the online ad market. U.S. online advertising
growth is expected to decelerate from 17% in 2008 to
14.5% next year, according to the Interactive
Advertising Bureau, an internet-advertiser trade group.
Advertising on social-networking sites appears
particularly vulnerable, analysts say, because
advertisers are still searching for the right ways to
measure the effectiveness of ads on those sites.
Advertisers say that buying ads on Facebook and MySpace
generally costs far less than buying premium ads on
media properties such as Yahoo Inc. or Time Warner
Inc.’s AOL, although prices vary widely based on the
type of ads and the target audience. Facebook charges
more for the engagement ads than other display ads on
its site.
The new ads won’t appeal to all Facebook users. Heather
Watson, 32, who lives in Nashville, Tenn., recently saw
the engagement ad for “Project Runway.” Ms. Watson says
such ads “detract from the [Facebook] experience,” and
she clicked the “not attending” option to wipe the Bravo
ad from her view.
In public appearances, Facebook’s 24-year-old Chief
Executive Mark Zuckerberg insists that his company
remains more focused on expanding its user base than its
revenues. The right business model for the site will
emerge over time, he has said.
This year, Facebook’s revenue is expected to more than
double to between $300 million and $350 million, say
people familiar with the matter. But the company has
mounting costs. At an industry conference last week, Mr.
Zuckerberg said the company didn’t need to raise more
money and wasn’t planning on going public for a few
years.
Still, Facebook has intensified its campaign to curry
favor with Madison Avenue. It has hired top ad sales
executives from companies including Yahoo and
periodically hosts teams of senior ad executives at its
graffiti-clad offices. It has also sent squads into
online-ad agencies, such as Starcom MediaVest Group, to
pitch products and generate awareness about its free
research tools.
Ads systems are built over time through continual
tweaking, says Facebook’s Chief Operating Officer Sheryl
Sandberg. She says Facebook’s existing ad offerings are
working well but “undersell Facebook’s broader
opportunity.”
Facebook has tried many ad efforts in the past, starting
with basic “fliers,” the low-budget graphical ads users
could buy to promote things like events. The company
began building its own internal sales force in 2005, and
in 2006 struck a deal to display banner ads sold by
Microsoft Corp. It also added products like “social ads”
in which Facebook shared a user’s action with others on
the site.
But many marketers stayed away, concerned advertising
alongside user-generated content might tarnish their
brands and that the site appealed only to college
students. As Facebook has widened its audience, it has
run into another problem: users weren’t clicking on ads
when they browsed each other’s profiles. Jeremiah Owyang,
an analyst with Forrester Research, estimates the rate
at which users click on Facebook’s display ads is less
than 1%. Mr. Owyang also describes Facebook’s array of
ad offerings as “confusing.”
More recently, Facebook has seen some traction with an
ad service for smaller advertisers that generally spend
the bulk of their budgets on search-engine ads. The
service allows users to buy targeted banner ads through
a Web site. Facebook says tens of thousands of
advertisers are using the system every month.
Online advertising agency G5 Search Marketing Inc. has
used the system to buy ads for clients such as a
California-based local storage company. The storage
company in May found it ended up getting more visitors
per dollar spent on Facebook than Google, says Dan Hobin,
CEO of G5.
But he adds that only a handful of clients have tried
Facebook, in part because Facebook offers to reach
specific groups that are far smaller than the size of
the audience his clients want to reach.
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