Facebook Gets Personal With Ad Targeting Plan

Facebook Gets Personal With Ad Targeting Plan

By VAUHINI VARA
August 23, 2007; Page B1

Social-networking Web site Facebook Inc. is quietly
working on a new advertising system that would let marketers target
users with ads based on the massive amounts of information people
reveal on the site about themselves.

Eventually, it hopes to refine the system to allow it
to predict what products and services users might be interested in even
before they have specifically mentioned an area.

As the industry watches the Palo Alto, Calif.,
start-up to see if it can translate its popularity into bigger profits,
Facebook has made the new ad plan its top priority, say people familiar
with the matter. The plan is at an early stage and could change, but
the aim is to unveil a basic version of the service late this fall.

[Faceboook]
A news-feed ad from Facebook’s current program

People familiar with the plan say Facebook wants to accomplish what Google
Inc. did with AdWords, which lets anyone place ads next to search
results by buying "keywords" online. It brought in the majority of the
search engine’s $10.6 billion in revenue last year. A Facebook
spokeswoman acknowledged the company is working on an ad system, but
declined to provide details.

Most users of Facebook treat it as a sort of online
scrapbook for their lives — posting everything from basic information
about themselves to photos to calendars of events they plan to attend.
They create a social network by linking their own Web pages with the
pages of other users they consider online "friends." Facebook already
uses some information from users’ pages in a rudimentary system that
allows advertisers to go online, and starting at $10, buy simple
"flyers" that run as boxed ads on the left-hand border of Facebook
pages. But for targeting, advertisers are limited to age, gender and
location of the user.

The new service would let advertisers visit a Web site
to choose a much wider array of characteristics for the users who
should see their ads — based not only on age, gender and location, but
also on details such as favorite activities and preferred music, people
familiar with the matter say. Facebook would use its technology to
point the ads to the selected groups of people without exposing their
personal information to the advertisers.

These ads would show up differently than the banner
ads and boxed flyers that appear on the borders of Facebook pages, say
people familiar with the plan. Instead, they would be interspersed with
items on the "news feed," which is a running list of short updates on
the activities of a user’s Facebook friends. In addition, the ads would
show up on Facebook pages that feature services provided by other
companies, one person says.

Facebook has already had some success in getting users
to notice similar ads created in a separate initiative. Under that
program, launched last year, advertisers say they typically spend about
$150,000 for a three-month campaign that gives them a special page on
Facebook, as well as the news-feed ads. But customizing these campaigns
can be a costly process for Facebook, which has to dedicate staffers to
the efforts.

Facebook hopes allowing advertisers to buy customized
ads online will be a less labor-intensive way to take advantage of the
personal data people reveal on the site. A key part of this new plan is
that Facebook would use an automated system to process transactions
instead of requiring advertisers to work with a Facebook
representative, people familiar with the plan say.

[Facebook]

Next year, Facebook hopes to expand on the service,
one person says, using algorithms to learn how receptive a person might
be to an ad based on readily available information about activities and
interests of not just a user but also his friends — even if the user
hasn’t explicitly expressed interest in a given topic. Facebook could
then target ads accordingly.

Getting this right is important for Facebook, which
was founded in 2004 by then-Harvard student Mark Zuckerberg and which
has become Silicon Valley’s latest darling.

While the Web site had roughly 30.6 million visitors
in July, the company says it needs to do a better job profiting from
its huge user base.

That’s because unlike other hot Web start-ups such as
MySpace and YouTube, which were acquired by large Web and media
concerns, Facebook wants to stay independent and potentially go public.
Last year it stepped away from talks with Yahoo Inc. and Viacom
Inc. to be acquired for close to $1 billion. The start-up’s investors
have publicly said they hope to take Facebook public at a valuation
approaching $10 billion. That would require the company to generate far
more revenues and profits than it currently produces.

Finding a way to use people’s interests and personal
connections to show them relevant ads has "always been the promise of
social networking, but we’re still waiting to see the big successes,"
says Debra Aho Williamson, an online-advertising analyst at New
York-based eMarketer Inc.

Facebook is on track for $30 million in profit this
year on $150 million in revenue, say people familiar with the matter.
About half of that revenue is expected to come through an ad deal with Microsoft
Corp. that lets Microsoft sell many of the major display ads on
Facebook’s U.S. site. The deal will likely bring in $200 million to
$300 million for Facebook through 2011, and potentially much more if
Facebook’s traffic grows rapidly, say people familiar with the matter.

However, advertisers say the addictive quality of
social networking means users are so busy reading about their friends
that they hardly notice display ads and, even if they do, are loath to
navigate away to an advertiser’s site. Advertisers say the percentage
of people that click on display ads is lower on Facebook, News Corp.‘s MySpace and other similar sites than on other popular Web sites like Yahoo Finance and CNET Networks Inc.’s News.com site.

As a result, Facebook has needed to diversify its
revenue sources away from just display ads. The new ad plan is being
spearheaded by Matt Cohler, vice president of strategy and business
operations, and Chamath Palihapitiya, vice president of product
marketing and operations, with input from CEO Mr. Zuckerberg, say
people familiar with the matter.

Facebook’s plan, if it works, could be potentially
powerful for advertisers. While Google’s keyword-targeted ads aim at
"demand fulfillment" — that is, they are triggered by Internet
searches conducted by people who are actively looking for something
that they want — Facebook’s new ad plan could help advertisers address
an area called "demand generation." This involves using available
information — not just from a user but also the activities and
interests of his "friends" on the site — to figure out what people
might want before they’ve specifically mentioned it.

"It’s about saying, ‘We are going to take this
information because you’ve acknowledged that you have an interest in X,
Y and Z,’" says David Blum, who oversees the interactive division of
Sausalito, Calif., ad agency Butler, Shine, Stern and Partners.

But Facebook’s new plan faces hurdles. It could upset
Microsoft, which is itself trying to build technology to make it easier
for advertisers to place targeted ads on Facebook. A Microsoft
spokeswoman declined to comment on this issue.

While Facebook plans to protect its users’ privacy and
possibly give them an option to keep certain information completely
private, some Facebook users might rebel against the use of their
personal information for the company’s gain.

And the perceptions that targeted ads create can be as
much of a problem as the reality. "Most people don’t realize how
targeting works; it becomes so good that even though it’s anonymous,
you feel like they know you," says Rishad Tobaccowala, CEO of Publicis
Groupe-owned consulting firm Denuo Group. However, he says Facebook
needs to be careful in implementing any targeted ad system, lest loyal
users "find it creepy."

— Kevin J. Delaney contributed to this article

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