Facebook is developing new advertising products to prove the effectiveness of ads on its platform and justify its high valuation. Its "Expanded Premium Ad" incorporates social elements like displaying if a user's friends have liked the advertised content. Facebook is analyzing user data to show advertisers which types of ads and campaigns are most effective. It has partnered with Nielsen to develop new metrics like gross rating points to help advertisers evaluate online ad campaigns similarly to television. While some brands remain skeptical, Facebook aims to demonstrate advertising can boost the viral spread of user content about brands.

1. •
I
'»-Kc Room,
-M
David Fischer
(left ) oversees
' Bra
FACEBOOK'S NEW
106 I FORBES
DECEMBER 5.2011

2. Ill
- ^ 1 , ,
BY ROBERT D. HOF
DECEMBER 5.2011
FORBES I 107

3. FORBES
FACEBOOK
F
acebook Chief Executive Mark Zuckerberg
doesn't talk much about his company's advertising
business, even when it invents new kinds of ads
that could disrupt a chunk of the $500 billion
influence industry. So it was up to David Fischer,
who left a star career at Google early last year to run Facebook's advertising business, to make a pilgrimage to the weeklong annual confab of marketers in New York in October.
What he showed during his speech was something
blandly dubbed "Expanded Premium Ad." It's simply a short
post—"Rolling Stone calls Ides of March 'A big bmising
thriller'"—ti-ansformed into a right-hand-side ad that goes to
a targeted audience. "Honestly, it doesn't look that interesting," Fischer conceded during his address.
Then he described one small wrinkle: If yourfi4endJim
has clicked the "Like" button back on Columbia Pictures' fan
page, a line of text will pop into the ad saying "Jim Squires
likes Ides ofMarch" alongside his photo. People ai-e twice as
likely to remember an ad if their friend is in it, according to the
Nielsen Co., and they tend to click on it or share it with friends
more often thiui they do plain-vanilla display ads. What's
more, their intent to purchase rises fourfold when they see
"social" ads like this. Twice the recall. More clicks. Quadruple
the purchase intent More productsflyingoff the retail shelves.
These are not uninteresting concepts to marketers.
On the surface it's puzzling that Facebook feels the need
to prove itself to Madison Avenue. With an audience of
800 million worldwide, the social network will double its ad
sales this year, to $3.8 billion, according to eMarketer. But
the way Fischer is pitching to advertisers, with a focus on
the results and not the fiash, is very telling. If Facebook is
'IT'S THE BIGGEST QUESTION
OUR CLIENTS ASK: 1S THAT
A GOOD NUMBER?'"
going to justify its $80 billion private valuation—let alone
the initial public offering widely expected next year—it will
have to show brands how these purposely plain ads will deliver the goods. "The best ads on Facebook are the ones that
are most consistent with what's already being done on
Facebook," says Fischer. Indeed, but for the tiny "sponsored" label above them, you can hardly tell they're ads.
A lot of brands, however, aren't yet convinced. Facebook
ads are clicked on only once every 2,000 times they're viewed.
Typical banner ads are clicked on twice as often. Google
search ads are clicked on 40 times as often. By most accounts
brand spending on Facebook has been focused on getting people to become tans of tlieir Facebook pages because, well.
108 I FORBES
DECEMBER 5,2011
everyone else was and they didn't want to appear clueless. Fan
campaigns aside, just 12% of marketers and agencies in a
recent survey by the ad tech firm Collective thou^t social
media such as Facebook works in an ad campaign.
There's so much activity on Facebook that marketers
aren't sure what correlates with common advertising gauges
such as brand awareness and propensity to buy. Facebook
fan count? Ad clicks? How many times people shared a post
on a brand's Facebook page? "It's the bi^est question our
clients ask: 'Is that a good number?"' says Sarah Hofstetter,
who as senior vice president of emerging media and brand
strategy at the digital ad agency 360i helps companies such
as Coca-Cola and Kraft manage marketing on Facebook.
To make its numbers Facebook is crunching them.
Dozens of data geeks are hunkered down in a nondescript
building nicknamed "1050" for its address on Page Mill
Road in Palo Alto, Calif They're mining the 250 million
photos shared and the 100 million likes per day. They're
looking for clues as to which kinds of ads and other marketing work best on this new canvas—and how it all compares
with other media. The overriding goal, says Brad Smallwood, Facebook's head of measurement and insights: "We
want marketers to know that when they invest in Facebook
and in online in general, they're going to see measurable impact in the same way they know TV works."
Social media offers tantalizing new possibilities for getdng consumers' attention in ways that are strikingly differentfi-omsearch and display ads, the two dominant forms of
online advertising. Those older forms are, to vaiying degrees, aimed at prompting immediate or near-term transactions, but the biggest ad spenders want to create a longterm affinity for their soap, cars or beer. Most products are
still bought in physical stores well after the ad was served.
That's why marketers still love TV, where they can tell their
stories in a setting where people are relaxed and receptive.
Television didn't take off as an ad medium until it moved
from ads showing people reading a radio script to forms of
advertising that fit the medium. Facebook needs to find the
social media equivalent of the 30-second spot. It's starting
to do so by converting the primary gesture of social
media—sharing—into something potentially even better for
branding than TV ads: a supercharged version of word of
mouth. It's the most valuable form of marketing but tough
to build quickly and even tougher to control.
Facebook demolishes those limitations. People have an
average of 130 Facebookfi-iends,so when they "Like" a
brand that endorsement spreads instantly to the news feeds
of many of those friends—who then may spread it further to
their friends, potentially building to millions of people in a
fiash. Mai-s Chocolate North America, for instance, seeded
demand before last yeai-'s launch of M&M's Pretzel by offering samples through a virtual vending machine to 40,000

4. FORBES
FACEBOOK
fans, who each could spread the offer to two of their friends.
In less than 48 hours 120,000 samples fiew out the door.
Last month, based on the work of its data teams, Facebook
inti'oduced a series of new metrics that gives a marketer a
dashboard for word of mouth. A new measure called "People
Talking About This" counts the number who have liked a
page, shared a post or taken other actions involving the brand
in the past v'eek. Marketers can also see potential reach (how
many friends offinendscould fwtentially see a brand's post)
and actual reach (the number of people who did see the post).
Most of these impressions are people seeingfreebrand messages in their news feeds, eitlier fit)m the companies they've
liked or from their fHends who did die same. If tliis unpaid
media works so weü, why should brands pay for ads at all?
"I don't think the big opportunity [on Facebook] is a lot
of advertising," says Randall Brown, Gatorade's global director of digital engagement. He uses Facebook mostly to bolster the brand connection with sports nutrition by monitoring conversations. In one case a Gatorade television ad was
prompting people on Facebook to fixate on the word "swagger" in the ad's voice-over, diverting attention from the core
brand message. So rather than mnning ads on Facebook,
Gatorade simply used it to help edit the TV ad.
In anticipation of such shrug-offs, Facebook's researchers
came up with data showing that ads are crucial for goosing
the viral spread of messages from and about brands. In early
September British luxury fashion brand Burberry ran a type
of Facebook ad called a "Sponsored Story," which converts a
IF UNPAID MEDIA WORKS SO
WELL O N FACEBOOK, WHY
SHOULD BRANDS BUY ADS?
friend's like or similar actions unaltered into a paid ad on the
right side of the Facebook page. The reach of Burberry's page
posts immediately rose from well under 1 million unique
users to 3 million, then sank back down after the ads stopped.
And Facebook says when Sponsored Stories are followed by a
"social ad," which are paid marketing messages such as "Jill
and three of your other friends like Burberry," the brand gets
Uvice as many clicks, likes and comments.
What advertisers really wantfi-omWeb publishers are
ratings for display-ad campaigns that are similar to those
used in television ad campaigns. Until recently Web publishers have declined, insisting that they offer more measurable stats such as clicks. Smallwood, a former Yalioo ad
exec, realized after he joined Facebook three years ago that
the company was in a unique position to bridge that gap.
Unlike TV or radio, Facebook has highly accurate demon o I FORBES
DECEMBER 5.2011
SOCIAL CLIMBER
FACEBOOK TRAILS FAR BEHIND BOTH TELEVISION AND GOOGLE IN
AD REVENUES, BUT IT'S GROWING FAR FASTER THAN EITHER.
AD
SPENDING
2011
GOOGLE
FACEBOOK
TELEVISION
REVENUE
GROWTH
RATE
AVERAGE COST
PER THOUSAND
IMPRESSIONS
(CPM)
$36.9 BiL
24.5%
N/A1
$ 3 . 8 BIL
104%
$3.80
$ 6 0 . 5 BiL
2.5%
$14
GOOGLE ^ A R C H ADS ARE SOLO 8Y THE ŒICK NOT CPM, SOURCES. THOMSON FINANCIAL EMAPKfTER, MEDIA ÛV7MM/CS
graphic data about its users. And because so few people
click on Facebook ads compared with publishers' websites,
Facebook was keenly motivated to find alternative metrics
to measure the real impact of social activity.
Smallwood started talking with Nielsen last year about
creating a system to rate online ad reach in gross rating
points, or GRPs, which multiply the size of the audience by
the number of times the audience sees the brand. Although
the idea was not limited to ads in social media, Facebook's
data were instrumental in providing accurate demographic
data similar to Nielsen's TV panels.
The system, called Online Campaign Ratings, launched
in August, so the results are still uncertain, but 18 of the top
25 advertisers have run more than 120 campaigns using it
"It gives the client the ability to compare the reach of online
and the reach of TV," says Steve Hasker, Nielsen's president
of media products and advertiser solutions. Not least, Facebook is working with Nielsen to scale up a service called
BrandEffect. Similar to what Nielsen does with TV viewers,
BrandEffect polls people on Facebook who saw a particular
ad and measures changes in brand recognition and purchase consideration.
Facebook can succeed wildly in online advertising if it
can convince Madison Avenue to look beyond its ads' lack
of creative sizzle. Facebook ads work best, the company's
research indicates, if they're used in conjunction with more
creative brand efforts on fan pages and branded apps. But
that's a tough sell to an industry whose creative infrastructure is still set up around the ad. "Facebook needs to come
up with something more beautiful," says Coiy Treffiletti,
cofounder of digital marketing firm Amplify Social.
Even Facebook concedes as much. Closing Facebook's
Ad Week presentation with Fischer, Mark D'Arcy, a former
Time Warner ad exec who's now Facebook's director of
global creative solutions, said of Facebook ads, "We're sort
of like 1951 television."
To put it another way, Facebook still needs to marry its
social ad science with the ad industry's creative dark arts.

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