Facebook unveiled its long-awaited ad strategy here today.
The 50-million-member social network seeks to combine interest- and demographic-based targeting with peer recommendations. Ultimately, Facebook is striving to have the same impact on generating product demand as Google has in the realms of direct response and search advertising.
Facebook CEO Mark Zuckerberg said the initiative, called Facebook Ads, points to the future of advertising after the end of mass media.
"Nothing influences people more than a recommendation from a trusted friend," Zuckerberg told a packed room of advertisers, agency executives and press. He called peer recommendations, "the Holy Grail of advertising."
By Zuckerberg's estimates, Facebook is aiming for a much larger piece of the advertising market than the direct-response business Google has served. He estimated what he called "demand-generation" advertising as a $400 billion market.
If Facebook becomes a key player in generating advertiser demand, it could go a long way toward justifying the lofty $15 billion valuation attached to the company with Microsoft's recent $240 million investment. (It is estimated Facebook will only take in $150 billion from advertising this year.)
The cornerstone of the new approach is a Facebook company page, which firms can set up for free. These would act much like user-profile pages, containing applications, information, videos and other content. Users can choose to be "fans" of the various brands, allowing advertisers to send them messages or add applications. Facebook is launching with 100,000 company profile pages. These pages will replace the "sponsored groups" it had previously sold to brands.
Facebook is coupling the brand pages with a new ad system that will target both banner-like ads and sponsored stories that appear in Facebook's news feed. Advertisers can pay either per impression or per click to target ads based on both demographic data, such as age and gender, and interest categories like movies, music and books. It plans to expand the targeting criteria in the future.
Brands would be able to promote their pages through the ad system. In addition, rather than generic ad messages, Facebook will run "social ad" placements. For example, users might see ads with photos of friends telling them they rented Ratatouille from Blockbuster (and rated it highly).
Zuckerberg called it "the first advertising system for spreading your message virally through the social graph," using the Facebook-coined term for the connections that make up human interaction.
Facebook is also taking tentative steps to extend into the wider Internet.
It is letting brands place "beacons" on their Web pages so users can share information on Facebook purchases or actions they've taken on an advertiser's site. Forty-four have implemented beacons already. Example: An eBay user now has the opportunity to alert his friends about items he has posted. The information is sent to the mini-feed on his profile page and to his friends' news feeds. Like the company profile pages, Facebook beacons are free.
In some ways, Facebook is following a proven path. MySpace has become a popular place for advertisers to set up profile pages that users can claim as friends. Yahoo! last year began a program to set up brand hubs. Yet, Facebook believes its combination of profile pages and its deep targeting capability can ignite viral, peer-to-peer messaging better than rival sites.
As an example, Zuckerberg pointed to the meteoric viral growth seen by applications such as iLike, which quickly gained over 1 million users for music sharing. The key, according to Zuckerberg, is Faceboook's "massive network of real-world connections."
Coca-Cola is using all three products for Sprite. It has built a Sprite Facebook page that offers users the opportunity to customize and download applications called "Sprite Sips." The animated characters can be augmented if users enter codes found on Sprite bottle caps. The company will promote the page through Facebook ads that target Sprite's youthful demographic, as well as in certain interest categories such as music.
Carol Kruse, vp of global interactive marketing, said tapping into Facebook is part of the company's strategy to "fish where the fish are." Ultimately, Coke is "building a network of experiences," she said.
What remains to be seen is user reaction to the new ads.
Zuckerberg acknowledged that members would not be able to opt out of having their photos and recommendations appear in ads if they interact with a brand profile. They will, however, have control over whether their off-Facebook activities are fed back into the site.
He acknowledged that Facebook would hear from its users if they have objections. "We'll see if they come up and we'll react quickly to that," he said.
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