Media Forum: Can Facebook win with ads?

Will it be easy to monetise the social networking site, Alasdair Reid asks.

Back in January, when the Facebook board member Peter Thiel announced that the company was rejecting a $1 billion takeover bid by Yahoo!, he implied the offer was derisory. Its true worth, he added, was $8 billion or more, seeing as how it was a media asset at least on a par with Viacom's MTV.

Well, perhaps. True, its popularity has grown hugely since offering (more or less) unrestricted access in September 2006, but it has always appeared to have a rather vague and flimsy business model. And more recent analyses have done little to dispel this impression - it is estimated, for instance, that, this year, Facebook is likely to make a profit of $30 million on revenues of $150 million.

Good for a company so young, and yet astonishingly short of the levels demanded by the hype. Especially when there are indications that the early adopters who'd made the site cool in the first place are already beginning to leave - and those who are staying are forming cantankerous user groups to resist its commercial exploitation and to highlight violations of privacy by the police and college authorities. It has also been cited in a number of sexual molestation cases.

On the other hand, the Facebook public relations juggernaut is still gaining momentum, and, in the past few months, it has continued its climb up the internet's audience league table. According to some measures, it is now the seventh-most-visited website in the world, and it has, of course, become de rigueur in ad agency circles to namecheck Facebook - but does it really deliver anything of interest to advertisers? Does the company have anything coherent to sell?

We might be about to find out. Blake Chandlee, the commercial director of Yahoo! in the UK, has just jumped ship to set up a London sales office for Facebook.

Alison Brolls, the senior manager, global marketing and media planning at Nokia, says the proposition will only be interesting if Facebook can offer advertisers something above and beyond what's already available online. She explains: "Let's face it, it's (currently) not that revolutionary, plus there's a question about whether it delivers advertiser value. Sites such as Facebook are notorious for offering very low click-through rates. People using it don't want to bounce around outside the site."

Brolls believes it must find a way of selling its ability to deliver highly targeted advertising. But Wayne Arnold, the chief executive of Profero, isn't sure that's the right way forward. It has to form new sorts of relationships with the brands that matter to its audience, he argues. He adds: "From a consumer point of view, it connects people like never before, but from an advertising point of view, it's still a bit confusing. People might reckon they should be on it because everyone seems to be talking about it, but its vision from an advertising point of view isn't so clear. I think they know it won't be as good an environment for display as even Yahoo!."

Damian Blackden, the director of strategic marketing technologies at Universal McCann, is more upbeat. He says: "I think there are two opportunities here. One is to find ways to target parts of the audience more accurately. The other is to develop (branded) widgets and applications that feed into users' interests - specifically, applications that encourage people to make contact with others in different ways. There has to be a real opportunity there, and it doesn't have to be expensive to develop. You could, for instance, have an advertiser associated with an application that, say, allows people to play chess with each other."

And Nigel Sheldon, the director of digital at Starcom, tends to agree. He concludes: "No media property has a higher public relations profile currently than Facebook - so that's not a bad place to be starting from. Most of the big companies around town are trying to experiment with the best ways to involve themselves in social networks - it's a key strategic goal. So I think Blake Chandlee would be right in thinking this could be an exciting opportunity."

MAYBE - Alison Brolls, senior manager, global marketing and media planning, Nokia

"If Facebook can seriously start to deliver an ability to precisely target ads to individual profiles of Facebook users with ads they actually want to see, then it could start to get interesting."

MAYBE - Wayne Arnold, chief executive, Profero

"It has to form different sorts of partnerships with the brands that are important to its audience. But it has to do it quickly. Last year, everyone was talking about MySpace - this year, it's a bit old hat."

YES - Damian Blackden, director, Universal McCann

"There's no question there's an engaged audience - people are spending a huge amount of their time on Facebook. And there's not only an interested audience, but an interested media industry, too."

YES - Nigel Sheldon, director of digital, Starcom

"Its PR profile gives Blake Chandlee a head start, especially as most agency people are heavy users. From an advertiser's point of view, it's a big challenge, and there are risks associated with that challenge. But it's a huge opportunity and marketers need to be brave."

- Got a view? E-mail us at campaign@haymarket.com.

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Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).