Facebook's Plan to Amp Up Ad Revenue

An interesting article that was published today at AdvertisingAge by Michael Learmonth:

NEW YORK (AdAge.com) --
Think Facebook's 15 minutes are just about up? Well, one in five web users in the world is saying otherwise. Facebook lured 222 million unique visitors in December, according to ComScore, twice as many as MySpace, and it has been growing at a more than 10% rate each month since September.

Until now, Facebook has focused on growth at the expense of advertising, much like YouTube circa 2007. MySpace, on the other hand, wasn't born in a Harvard dorm room and is run like a profit center for Rupert Murdoch, one reason it's expected to book around $1 billion in ad revenue in 2008, compared with Facebook's estimated $300 million.
Jeff Berman, MySpace's president-ad sales and marketing, said the social network is competing for portal dollars, seven-figure ad budgets often splashed on home-page takeovers and banners.
Don't expect Facebook to follow suit. "Lots of companies our size have decided somewhere along the line that they'll turn on the monetization and slap banners up," said Facebook VP-Sales Mike Murphy. "That's not what we're trying to do."

The joke around Facebook is that it is run like a nonprofit. Indeed, for a site its size, it has remained remarkably free of overt commercial activity. Last fall, Facebook began trying to dial up the ads with a new generation of units it calls "engagement ads."
But as it tries to scale as an advertising business, the irony is that marketers can leverage the platform without actually paying for it. Take, for example, Burger King's "Whopper Sacrifice" application, which allowed users to un-friend 10 friends for a free Whopper. The application resulted in plenty of press and more than 230,000 dumped friends, but Facebook earned no revenue from it. Ultimately, Facebook disabled the notification feature, which it deemed too intrusive, and the application was shut down.

The CNN integration with Facebook Connect, which allows users to export their profiles and
connections to other sites, was a huge success for the network, resulting in more than 2 million
comments during the inauguration of President Barack Obama, but it, too, was not a revenue generator for Facebook.

The promise of Facebook as a marketing platform is to get woven into the conversations taking place there, with ads that act as a "Trojan horse into the news feed," said Deep Focus CEO Ian Schafer. The conundrum is that marketers can do that without buying any advertising on Facebook. Any brand, like any person, can develop an application for Facebook, or use Facebook Connect. Facebook's "engagement ads" are about directing users to pages or applications with activities that trigger an action that is broadcast through the users' news feed.
Facebook has rolled out four of these so far, allowing marketers to create events (to which users can RSVP), comment on a video such as a movie premiere, become a fan and send virtual gifts.
A fifth type of ad The New York Times tried the virtual gift by allowing users to send an image of its "Obama" issue the day after the election. More than 220,000 gifts were sent, and the newspaper's "fans" tripled to 160,000.

Sony Pictures tested the commenting feature for a clip for "Rent" to see if a roadblock would increase awareness of the film in a given city. And it did, doubling awareness among Facebook users. On deck is a fifth type of ad that will allow marketers to conduct a poll within an ad, tested last week by CareerBuilder to build awareness for this year's Super Bowl spot. Those who respond to the poll get to see the results, as well as whether any of their friends have voted.
Marketers can use Facebook free, just as they can create a channel and upload videos on YouTube free, but Robson Grieve, managing director of independent agency Creature, said as the service grows, a media buy is essential to make a campaign scale. "In the same way people are putting up videos and getting lucky on YouTube, you can get lucky on Facebook, but there is so much content that fewer and fewer people are going to get lucky," he said.

At this point, the results of the first round of engagement-ad campaigns are starting to trickle in, and marketers will be scrutinizing them for results. MediaVest VP Mohan Renganathan said he thinks Facebook is headed in the right direction but sees at least two challenges for engagement ads in a down market: First, experimental budgets are being cut, and second, marketers are focusing less on brand building and more on survival. "If they shift toward short-term sales instead of awareness or engagement, Facebook might be a mismatch," he said.
Or, rather than paying for an engagement ad, they might shift dollars to low-CPM banners sold on the site through a deal with Microsoft.
Facebook is staffing up its ad-sales force around the globe, but if its efforts still seem nascent, it's worth noting that Facebook was invented as a communications tool and platform for applications, not for advertising.
"What you see now is the beginning of our thinking of how we can do this in a meaningful way," Mr. Murphy said. "We're pretty sure we're on to something."