Facebook risks alienating touchy users with new ads

Feb 27, 2012 By Mike Swift and Peter Delevett

Advertising on Facebook is about to gain a more prominent place, as the company works to boost revenues in advance of an initial public offering of stock.

With planning a major event on Wednesday - an invitation-only conference for marketers at the Museum of Natural History in New York - internal documents suggest the Menlo Park, Calif., company will announce upgraded "Premium Ads" that will be more prominent on the social network.

The new ads also will have more of what Facebook calls "social context," meaning the friends of the people who are fans of a particular product that advertises on Facebook - not just those who have hit the "Like" button for that brand - will see an enlarged version of the product's advertising. Those ads will say the user's friend likes the brand, adding a that Facebook says will make the ads 80 percent more likely to be remembered.

Company officials declined to comment on the documents, which were obtained by this newspaper. But analysts debated the implications of Facebook's plans to increasingly target ads by leveraging the connections between its 850 million users.

"It's really very important and very interesting, because it almost brings advertising into the realm of the testimonial and word of mouth," said Rebecca Lieb, an analyst with the Altimeter Group.

Founder and CEO has long resisted making advertising too central an element of Facebook. Nevertheless, ads produced $3.15 billion in revenue in 2011 - 85 percent of Facebook's total revenue and a 69 percent increase over 2010.

But with Facebook's global user growth slowing, the company needs to get people to spend more time on the site and make each ad exposure more valuable for Facebook. Doing so is key to justifying an expected valuation as high as $100 billion when the company goes public later this year.

"Going into their , they were going to have to be a lot more aggressive in terms of how they approach advertising," said Yoni Yadgaran, an analyst with Wedbush Securities. "Facebook in the past has always been user experience first, and careful not to make (advertising) more intrusive. The sense we're getting now is that Facebook is willing to sacrifice a little bit of that in order to ensure monetization."

Facebook faces a delicate balance in linking ads to the connections between friends.

"People do like getting information from friends, but as soon as that's outed as paid , people are going to see it as less trustworthy," said Karen North, who heads the University of Southern California's Annenberg Program on Online Communities. "If all of a sudden you have in there, it steps on Facebook's mantra about authenticity and trust."

One analyst warned that Facebook's making such big changes could indicate its revenue growth has weakened.

"These are the types of actions ad-supported companies save for a rainy day," said Sam Hamadeh, CEO of PrivCo, which tracks financial data on private companies. "It should be a red flag for investors."

Explore further: Twitter blocks two accounts on its Turkish network

not rated yet
add to favorites email to friend print save as pdf

Related Stories

Facebook, Omniture expand marketing partnership

Mar 03, 2010

(AP) -- Facebook and Omniture, the Web analytics software maker, said Wednesday they are working together to help companies use the world's largest social network as a marketing channel.

Facebook tries out targeted ads

Apr 06, 2011

Facebook is testing a new system that instantly targets ads based on the content of members' wall posts and status updates, as the social network joins a growing list of Internet companies working with advertisers to market ...

Facebook to pass Yahoo! in display ad revenue

Jun 20, 2011

Facebook is on track to pass Yahoo! in US display advertising revenue this year while Google will also gain market share, according to a forecast published on Monday by digital marketing firm eMarketer.

Facebook pays users to view ads

May 06, 2011

(PhysOrg.com) -- The general consensus is that end users hate ads. That is why companies either try to make them as unobtrusive as possible, such as the small ads you would find in the sidebar of a blog, or ...

Recommended for you

LinkedIn membership hits 300 million

Apr 18, 2014

The career-focused social network LinkedIn announced Friday it has 300 million members, with more than half the total outside the United States.

Researchers uncover likely creator of Bitcoin

Apr 18, 2014

The primary author of the celebrated Bitcoin paper, and therefore probable creator of Bitcoin, is most likely Nick Szabo, a blogger and former George Washington University law professor, according to students ...

White House updating online privacy policy

Apr 18, 2014

A new Obama administration privacy policy out Friday explains how the government will gather the user data of online visitors to WhiteHouse.gov, mobile apps and social media sites. It also clarifies that ...

User comments : 3

Adjust slider to filter visible comments by rank

Display comments: newest first

not rated yet Feb 27, 2012
LOL Too late for alienation by dFB adds, insecurity's done it all. Virtual authenticity and verified untrustworthy.
1 / 5 (1) Feb 27, 2012
Those 850 million users will probably switch to google . Facebook will be another myspace. A waste of resources.
not rated yet Feb 27, 2012
I was on FB a couple months, but every time I logged in I had to fix the privacy settings again. Total waste of time.

More news stories

Growing app industry has developers racing to keep up

Smartphone application developers say they are challenged by the glut of apps as well as the need to update their software to keep up with evolving phone technology, making creative pricing strategies essential to finding ...

Making graphene in your kitchen

Graphene has been touted as a wonder material—the world's thinnest substance, but super-strong. Now scientists say it is so easy to make you could produce some in your kitchen.