became clear that taking Facebook Inc public was a matter of when not
if, Chief Operating Officer Sheryl Sandberg went out and poached
Caroline Everson, then global advertising head at Microsoft Corp .
Landing an executive with Everson's pedigree was a coup - prior to Microsoft, she was a top advertising executive at Viacom
Inc's MTV Networks and at Walt Disney Co . The hire also sent a clear message to Madison Avenue from the world's largest online social network: We want to work with you.
Until Everson's arrival as vice president of global
marketing, Facebook's relationship with the advertising community was at best politely dismissive, at worst outright antagonistic.
Chief Executive Mark Zuckerberg has said he views
Facebook more as a way to connect people than a business, and he has
been adamant about limiting the impact of ads on user experiences.
Indeed, his reluctance to flood the social network with ads is widely
viewed as one reason why Facebook endured while an earlier rival,
MySpace, expired.
"Mark has an evangelical approach to advertising," said Martin Sorrell, chief executive of WPP Plc , the world's largest advertising agency. "He sees Facebook as a vehicle to open up communication, not to monetize."
But with 85 percent of its revenue derived from
advertising last year -- when revenue was $3.71 billion, Facebook
realized it needed to strike a more cooperative tone with Madison Avenue ahead of its initial public offering and the accompanying intense
scrutiny on profit growth.
Advertising sources identified Everson, along with
David Fischer, vice president of business and marketing partnerships,
and Blake Chandlee, vice president of global agency relations, as the
triumvirate leading Facebook's charm offensive.
"It's been remarkably different over the last 12
months," Michael Hayes, president of digital at advertising firm
Initiative, said of Facebook's attitude toward the advertising
community.
"They didn't really have a relationship with us before, but now they are trying to establish a relationship. I've definitely
seen an uptick in their interest in working with us," he said.
Last September, Facebook set up a committee consisting
of executives from brands that advertise on the site, as well as
representatives from many top ad agencies, to regularly provide feedback on its advertising products and services.
The company also commissioned Hayes' firm, Initiative,
to compare the success of Facebook ads against other media, such as
television, the first time it asked for such a study.
Sorrell said Facebook plans to introduce new
advertising products by the end of February. A source familiar with the
announcement said it would center on new products around mobile
advertising, but did not provide further details.
A Facebook representative declined to comment on any
new product announcements or to make Everson available for an interview, citing the quiet period ahead of the IPO.
ADVERTISING, FRIEND OR ENEMY?
Facebook, which boasts 845 million users worldwide, is more dependent on ad sales than CBS Corp , the most ad-dependent traditional media company, which derives two-thirds of its revenue from advertising.
Facebook ranks as the top provider of graphical online
display ads in the United States, accounting for roughly 28 percent of
the total "impressions" of such ads last year, according to industry
research firm comScore.
But analysts say the price that Facebook charges for
the bulk of its ads is lower than those of other forms of online ads,
such as the branding campaigns popular on sites such as Yahoo or the search ads offered by Google .
Facebook is taking steps to make its ads more valuable
to marketers by integrating social networking features with "sponsored
stories" or ads that highlight a user's friends who have "liked" a
certain product.
The big question is whether Facebook can further evolve its advertising offerings, which are tempered by privacy laws and the
changing parameters around how social networks can mine user data for
targeted marketing.
"Their ad product opportunities aren't too robust right now, and the effectiveness is spotty at best," Hayes said.
Facebook has come under criticism for the way it has
used member data in the past, including in 2008 when its Beacon
advertising product was assailed for disclosing such things as what
purchases people were making on Amazon.com to their friends without permission.
Companies have also removed ads from being displayed
against offending user or group profiles, not unlike how brands pull
commercials on television shows in protest.
Facebook listed the evolving nature of privacy and data protection laws as two risk factors that could impinge future growth in a regulatory filing.
Still, the key for Facebook, according to David
Eastman, president of digital at JWT, which is part of the WPP group, is keeping Wall Street at bay while it figures out how to monetize its
role as an identity broker.
"I'm worried about how the IPO will affect creative,"
said Eastman. "I'm worried that the demand for growth and making numbers will get in the way of really evolving the platform to figure out how
to monetize influence."
EVERSON AT BAT
If Everson and her team can establish that equilibrium, the opportunities for Facebook are enormous.
Internet advertising is expected to grow at an annual
average rate of 15.9 percent to $113 billion in 2014, from an estimated
$84.2 billion this year, according to Zenith Optimedia. That makes the
Internet the second-largest ad market behind TV, which by 2014 will
reach $215.7 billion.
Facebook currently commands only a sliver of agency ad
dollars. In 2011, Sorrell said WPP spent $1.6 billion with Google and
just $200 million with Facebook. This year Sorrell, who labeled Google a "frenemy" in 2006, expects to spend $2.3 billion with the search giant
and $400 million with Facebook.
Sorrell said the disparity is because of the greater
difficulty of monetizing social media. Not to mention that the increased competition with Google in recent years has made it a "friendlier
frenemy," Sorrell added with a laugh.
"Facebook is a superb branding medium, but right now it is more about PR than advertising," he said.
In June, Google launched its own social network,
Google+, to compete with Facebook. The service, which does not currently display any advertising, has won praise for innovative features such as group-video-chat technology and a design that allows users to easily
sort friends into different groups.
Sorrell said the two services are preparing for a "battle royal" to win the future of social advertising.
"There's a real battle shaping up and the competition
is intense," he said, adding that from the advertising community's
perspective more options are better than less.
Everson, who left Microsoft after nine months, is on the front lines of that battle for Facebook.
A New Jersey native, Everson graduated in 1999 with an
MBA from Harvard. She was pegged as a "Woman to Watch" by trade
publication Advertising Age last May, where her profile noted that she
got married in Disney World and had Wyclef Jean rap a song about her
twin daughters.
"Since she's joined, Facebook has definitely turned up
the heat on getting cozy with agencies," said JWT's Eastman. "There are
lots more opportunities to get closer and more involved with them."
-REUTERS