Can Facebook live up to the hype in 2008?
Facebook was the darling of the media industry last year, encouraging millions to poke their friends and spend hours playing Scrabulous. Richard Abbott finds out what it means for advertisers.
Facebook is the undisputed king of social websites, the preferred destination for young people to contact friends, share photos and fling some farmyard animals.
Such is the site's popularity that some employers have banned staff from using it in the workplace. The Facebook slang "poke" was recently added to the Collins English Dictionary, and Microsoft was sufficiently impressed to invest £115 million in a 1.6% stake valuing Facebook at $15bn that enables the software giant to sell display ads on the site.
But behind all the hype, a serious business plan is being rolled out. And while we may not yet be witnessing the future of advertising, the game is certainly changing.
New UK commercial director Blake Chandlee wants Facebook to be more than a social networking site (a term he insists is a misnomer). He envisages a "social utility" site; a place where offline relationships can be managed online.
He wants to turn consumers into brand ambassadors through its Social Ads platform, which enables users to interact with brands and create what Chandlee calls "trusted referrals" - the elusive word-of-mouth endorsement so sought-after by advertisers.
Even more intriguing - but unlikely to be available in the UK until the Spring - is the controversial Beacon programme, which feeds activity from third-party websites, such as online retailers, into Facebook news feeds.
Facebook accounted for one in 60 UK internet visits in September 2007, according to online data provider Hitwise. The site was the fifth-most-visited - behind Google.co.uk, eBay UK, Windows Live Mail and Google.com - and the most popular social network. Facebook's own figures reveal more than seven million active UK users, of which 50% return every day.
Chandlee claims the biggest challenge for 2008 is to connect advertisers to this growing user base in an effective way. And he feels that, unlike some social networking sites, his potential audience is not restricted.
"Facebook's demographics mirror that of the general internet population almost exactly," he says. "The excitement and the hype are very strong right now. It is about how we manage those expectations; the key will be how we educate the advertising community."
His ambition for the year ahead? "I would like to have most of the major advertisers active on the site by the end of the year."
In the meantime, advertisers and agencies are working out how to balance the opportunity to engage with the elusive 18 to 25 demographic, against the risk of opening themselves up to a user-generated environment.
Carphone Warehouse and Orange are among the brands to have dipped their toe into the water and more are expected to follow after a recent round of agency briefings.
"(Advertisers) are knocking at our door pretty hard," says Alex Marks, head of UK marketing at Microsoft Digital Advertising Solutions, which handles Facebook's traditional display inventory.
Agencies agree that Facebook presents a fascinating opportunity, but - for now - most are adopting a wait-and-see approach.
Andrew Walmsley, co-founder of digital agency I-Level, says: "(Facebook) has enormous potential. It is very clever. But I am naturally suspicious of the idea that it can become the total internet experience.
"Blake is very smart; he has a vision. And he has very good relationships with people in the advertising and media community. As people ask how to use this platform, those relationships - and trust - become very important."
Matt Champion, deputy managing director of PHDiQ, says Facebook is attempting to position itself in the same space as Google: as a facilitator of communication.
He says: "The exodus of senior people from Yahoo! to Facebook, plus a very steep incline graph of growth, means that Facebook is a very good-looking business model. We have been crying out for the opportunity to spend money in that space."
Analysts are also impressed. David Bradshaw, an analyst in software business models at Ovum, identifies the high volume of users in the UK, Canada, US and Australia as a key strength, but says there is room for further growth.
"Facebook has a bunch of dedicated users and has done incredibly well to develop its user base," he says. "Not all registered users are active, but there is an incredible amount of activity among those who are. There is every prospect that Facebook will expand its user base even further."
The biggest question posed by the sceptics is whether Facebook will fade out of fashion, like so many online fads. But Chandlee has staked his reputation on it.
"I did not want to take a big job and then realise a year later that I had made a mistake. I feel strongly that we are creating a value proposition for consumers and advertisers that has longevity," he says.
However, Nick Burcher, board director (buying) at Zed Media, is unconvinced. "The killer will be what happens when the novelty factor wears off," he says. "You don't know if anything else is going to come along to steal Facebook's position. Will it become central to people's lives or is it a passing fad?"
Burcher says advertisers are finding it hard to capitalise on Facebook's opportunities. He points to the unpopularity of the Beacon ad system with American users, who want to keep their online activity to themselves; the mixed experience of brands who have dabbled with fan pages; and the unpredictability of user-generated content.
He cites the example of Canadian beer Molson, which used Facebook for an online marketing campaign where students were encouraged to post pictures of their campus parties.
Critics said the initiative promoted irresponsible drinking and the brewer decided to axe the campaign - with one senior executive reflecting that there was "a lot to learn" about using social networking media.
The power of Facebook - and the unpredictability of the medium - is well illustrated by the emergence of an unofficial appreciation society for fashion retailer Primark.
Such was the success of the group - started by a student in Oxford - that the retailer chose not to launch an official group, stating that the unofficial fan site generated "far more value than anything we could do".
This is eye-opening stuff for advertisers, highlighting how an expanding mass of brand advocates can generate more awareness than a marketing campaign. But PHDiQ's Champion warns: "You have to ask your client how happy they are about being opened up to comment."
Then there is the privacy issue. Facebook scored an own goal when, after launching its Beacon ad system in the US, more than 50,000 users complained that their online activities were being released without their permission.
Facebook made a swift about-turn and changed the system so that users had to opt in, but the affair attracted unwanted negative publicity. Ovum's Bradshaw says: "Facebook was clearly a bit stupid by not thinking about the privacy issues, but it has admitted that. It has not hurt the site too much."
While Facebook develops new tools for advertisers within its space, the job of selling the traditional display advertising belongs to Microsoft, following the firm's big-money acquisition of a 1.6% stake.
Bradshaw stresses that any valuation of Facebook based on this deal would be "completely misleading" and critics have rounded on Microsoft for paying over the odds.
Duncan Parry, director of strategy at digital agency Steak Media, says: "They paid a lot of money. But from Microsoft's point of view, (the deal) stopped anyone else getting hold of the display sales business."
The future for Facebook appears to hang on two things: how long it remains en vogue, and how well advertisers utilise the opportunity.
I-Level's Walmsley feels that the site is going beyond traditional advertising, prompting a new way of thinking about communication.
"Facebook isn't an advertising medium. That is a strength, but only if you recognise what that means. It is a weakness if you just try to roll old advertising models into it," he says. "The big challenge for agencies is to understand how consumers use the site. Facebook has given us a toy box; we have to figure out what to do with it."
Zed's Burcher says. "The most important thing is being able to integrate advertising and content in a credible way. If you can offer people a reason for interacting with you, then you get a much more rewarding return as an advertiser."
For all its wizard widgets and ambitious advertising models, the long-term fate of Facebook lies with the notoriously fickle online public. But, for now, it appears that advertisers can't wait to make friends with this exciting new platform.
Network: Social utility
Started: February 2004
Active users: 61 million
UK active users: 7 million
Advertising: Facebook Ads launched in November 2007
Sales: In October 2007, Microsoft takes 1.6% stake in Facebook and expands display ad relationship until 2011
QUESTIONS AND ANSWERS - FACEBOOK ON MEDIA WEEK TV
Name: Blake Chandlee
Occupation: Commercial director UK, Facebook
Network: Media Week TV
Date: Full interview goes live 22 January
Interviewer: Steve Barrett, editor, Media Week
- Facebook was the social networking brand of 2007. How will you make sure it still is in 10 years' time?
GREG GRIMMER, MANAGING DIRECTOR, ZED MEDIA
We differentiate ourselves from our competitors by defining ourselves as a utility. So it's not just about content, which to some degree can be commoditised, it's about distribution, presentation that surrounds utility, and as long as you provide tremendous utility and continue to innovate, new tools and functionality, that's the value we provide consumers. We're an engineering company, a technology company, and we will continue to evolve and provide that value to consumers.
- How far will consumers want to extend their social networking beyond a single site?
NIGEL SHELDON, DIRECTOR OF DIGITAL, STARCOM DIGITAL
We were the first people to really push hard behind opening that platform up for developers, advertisers and consumers. Portability is critical and we're being very progressive in how we view that. Bebo now accepts all Facebook applications, so it's a platform play - around 100,000 developers around the world are developing Facebook applications.
- How can you make ads noticeable without annoying users, or is Facebook more a brand community opportunity?
TESS ALPS, CHIEF EXECUTIVE, THINKBOX
All standard IAB advertising formats are being sold for us in the UK by Microsoft Digital Advertising Solutions, and initial feedback is very positive. My team will focus on the new Facebook Social Ads platform, which allows brands to become part of the content, part of the conversation with consumers. Consumers will start to see branded advertising within their newsfeed tied into the actions of their friends and family; their social graph if you will. Consumers acting as a trust referral are a very powerful way to reach consumers and influence behaviour, so it is an advertisement, but essentially it's a marketing and communication platform - word-of-mouth advertising - but just with technology driving efficiency and skill to it.
- Will Facebook continue to function purely as a social utility or will you branch out into becoming an entertainment destination?
GUY PHILLIPSON, CHIEF EXECUTIVE, IAB
We're a utility. We're not going to produce content. We're a technology and engineering company. We're much closer to a Google than we are to a Yahoo! or an MSN.
- Does Facebook intend to participate fully in the UK self-regulatory system as represented by the Advertising Standards Authority and the CAP code?
HAMISH PRINGLE, DIRECTOR GENERAL, IPA
The social networking space, expressly social ads and the way we're approaching it, is very new, and what that means to consumers and how advertisers can integrate themselves into it is still being defined. Part of our agenda for 2008 is to educate and partner with organisations such as the IAB and the IPA, to understand the right way to approach this. We're open to having those conversations and they are ongoing.
- How will Facebook deal with rogue applications now it has opened up its programming interface?
TONY SAMIOS, CHIEF OPERATING OFFICER, STEAK MEDIA
We're very cognisant of the role we play in that. As it becomes more popular, there are features, functionalities and tools that allow us to understand the value of those applications to consumers. There will always be people who try to take advantage of a system. Our role is to make sure we stay ahead of that, control that and police that, so consumers stay satisfied.
- How will social networks change the way brands communicate with younger customers, and will this eventually lead to the end of traditional marketing?
LUCY ALLEN, MANAGING DIRECTOR, NETRANK
Advertising as it exists today is not going away. There is an evolution in the next generation raised with a different set of technologies. They don't look at it as technology; they just look at it as part of their life - so advertisers do need to understand how they can leverage that. The platforms are here, the communities are there. How do you as a brand make sure you're aware of what they're saying? How do you create a value proposition that gets consumers to engage with your brand? Tremendous strides are being made, but it does change the way we have to approach things.
CASE STUDY: STA TRAVEL
Celia Pronto, marketing director for STA Travel, says: "Social networking is massively influential for us. We have spent a good five months doing work on Facebook and it is something that we will continue to develop and explore."
When the youth travel specialist first experimented with Facebook, it developed its own branded community, which now numbers more than 20,000 people worldwide.
From there, STA Travel produced online widgets that users can download and integrate into their online profile page.
"We tried to understand how people are using Facebook and how we could create devices that engage with them," Pronto explains.
These devices include a countdown showing users how much time is left until their next holiday, and a tool that compares the weather in their travel destination with that in their home town.
At the moment, these tools have to be downloaded from STA Travel's site, but the firm is looking to have them available for download on Facebook itself.
The company's next step was to utilise Facebook to get messages seen by the exact target audience for STA Travel products.
Pronto admits that some of these campaigns have worked better than others, although she declines to reveal too much about her most successful initiatives for fear of losing a competitive advantage.
She says: "I feel that Facebook advertising is working for us. Some of their solutions are quite neat, integrated and subtle. We have tried a number of different applications and targeting methods and have found that better targeting gives a better response.
"Facebook is a relevant way for us to reach our target market."
THE CYNIC - Nick Burcher, board director (buying), Zed Media
"I'm not sure that Facebook will live up to the hype in the long run. Facebook has grown rapidly, but once the novelty factor has worn off, its appeal will dwindle and the public will be quick to move on to the next craze. Half of Facebook's users currently check their pages daily and have very high average page views. However, there are signs that users are visiting less frequently, and, in time, this will reduce the site's appeal for advertisers."
THE CLIENT - Celia Pronto, marketing director, STA Travel
"We do quite a bit of activity with Facebook. It is practically ubiquitous now - everyone is on there. It will be interesting to see how it balances advertising with the community feel of the site. We are very conscious that it could be Facebook today, but something else tomorrow. Everything we do is about scalability and portability: what can we develop that we can move to another application if there is something big tomorrow?"
THE SALESMAN - Alex Marks, head of UK marketing, Microsoft Digital Advertising Solutions
"There is an education job to be done. Advertisers have been cautious because they feel that perhaps Facebook is a place where they might have the piss taken out of them. But there are places that they can play, and it is up to us to make sure that advertisers can populate this site in the best possible way. Our research shows that consumers accept advertising to a point, because they know they are getting something for free."
THE ANALYST - David Bradshaw, analyst, software business models, Ovum
"Facebook has a bunch of dedicated users. Not all are active, but there is an incredible amount of activity among those who are. Facebook's revenue model is still work in progress and the recent stumble over confidentiality didn't help. Google has an advantage because it knows its users and its users' intent. When you search Google, you have a clear intent; Facebook doesn't have that advantage as it isn't a search site."
This article was first published on Media Week
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