Balancing the book

Despite being the world’s leading social networking site

Facebook has 100 million users worldwide, a global phenomenon, but to date its advertising platform has failed to match this demand. Facebook’s chief executive, Mark Zuckerberg, admitted at the start of this year that its earnings before interest and taxes would be just £25m by the end of 2008 – significantly less than MySpace’s earnings target of £500m.

The company is doubling its UK sales and marketing team, as it starts a major advertising engagement programme to make the site more attractive to advertisers (MW last week).

Facebook was founded in February 2004 by Zuckerberg and three fellow Harvard students. The website was a hit within Harvard University and went on to be launched in all US universities and colleges. Following high uptake by students across the US, a series of US private equity firms invested about £20m in the site, enabling it to launch globally in September 2006.

It has over 150,000 new registrants daily and records over 40 billion page views per month. The company claims that in the UK 5.5 million people log on every day and says it is valued at almost £2bn. Last month, ComScore reported that Facebook is the leading social network site globally, attracting 132.1 million unique visitors in June 2008, compared to MySpace, which attracted 117.6 million.

The challenge for the company is to monetise this reach. Facebook Ads, its advertising platform, was launched last year and offers targeted advertising based on keywords in user profiles. Though some brands have reported success from the ad platform, others have expressed concerns over low click rates.

Other problems have also affected Facebook’s commercial prospects. In July 2007, First Direct, Vodafone, Virgin Media, the AA, Halifax and the Prudential withdrew ads after they appeared on a group page relating to the British National Party (BNP). As a result, Facebook’s commercial director for Europe, Blake Chandlee, says that ads will no longer be displayed on commercial pages and group pages.

Further controversy surrounded the launch of Beacon – a system that tracks web shopping on partner sites outside Facebook and then sells adverts to the social network, based on purchases, raising privacy fears. These fears were added to by the decision to allow Google to list profiles in its search results. Chandlee stressed that these are optional and user privacy is taken very seriously. He says the switch to engagement ads has been designed especially to tackle this problem. A trial of the new scheme is due to launch next month.

Users in control

“We want users to engage in the new ads in the same way as they currently use Facebook, so they are always in control,” Chandlee says.

Engagement ads will encourage members to interact with the ads by leaving comments, sharing virtual gifts, or becoming fans. Brands will be able to host pages and/or develop applications.

However, some digital agencies are sceptical of the benefits they can provide. Kate Walmsley, strategic consultant at AKQA, says: “The brands that will succeed are those that are willing to develop creative designed to elicit a response – and then listen to what their consumers have to say – the good and the bad.”

Facebook also faces increased competition, not just from its rivals. Yomego is a social media agency that offers brands an alternative to social networking websites. Its managing director, Steve Richards, says: “It’s not good enough anymore for a brand to customise a page of Facebook. As consumers become more savvy, they expect their favourite brands to push the boundaries.”

Chandlee says that young adults aged between 18 and 30 dominate the audience for Facebook in the UK, and brands like to engage with this age range.

However James Eder, commercial director of website studentbeans.com, argues this is not the case. “No matter what bells and whistles Facebook adds to its portfolio of marketing solutions, the audience will always be far more interested in social interaction than commercial interaction,” he says.

Chandlee says further expansion into Europe is on the way and that Facebook’s development team continues to work on tools, such as Facebook Lexicon, which provides brands with a system to see how often users write about different keywords on their walls.

Chandlee hopes the new advertising platform, combined with doubling the UK sales and marketing team, will finally allow Facebook to become as dazzling a commercialFacts and figuresv Mark Zuckerberg, and three other Har- vard students, created Facebook on February 4 2004 v The website was initially launched to be a social networking hub for Harvard stu- dents, before being opened up to all US universities v Following its success across the US, the website was launched globally on Sep- tember 26 2006 v Facebook continues to grow and has over 150,000 registrants daily, and records over 40 billion page views a month v In the UK, 5.5 million people log on to the site, with the average visitor staying online for 20 minutes v Last month, ComScore reported that Facebook is the leading social network site globally, attracting 132.1 million unique visitors in June 2008 v On August 26, the site recorded its 100 millionth member.

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