Facebook's revenue has been steadily climbing, and its executives have become increasingly attentive to maintaining relationships with the advertising industry.
Introduction: Foreign media today wrote an article pointing out that in the past year, Facebook has changed its previous resistance to the American advertising industry, beginning to approach it with a more cooperative attitude. It even formed a committee composed of three vice presidents specifically responsible for implementing Facebook's "charm offensive," laying a good foundation for long-term development after going public.
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Winning over the advertising industry
About a year ago, when Facebook's IPO became increasingly clear, Sheryl Sandberg, COO of Facebook, personally recruited Carolyn Everson, former president of Microsoft's global advertising department, to serve as vice president of Facebook's Global Marketing Solutions department.
Recruiting Everson was significant for Facebook: before joining Microsoft, she served as an executive in the advertising department of Viacom's MTV Networks and also worked at Disney. In addition, this world's largest social networking site conveyed a clear message to Madison Avenue (a synonym for the American advertising industry): we hope to work together with you to create a shared future.
Before Everson joined, Facebook and the American advertising industry were only superficially united, and even had an adversarial relationship. Mark Zuckerberg, CEO of Facebook, once said that he viewed Facebook more as a platform connecting people rather than a business. He has consistently adhered to a principle of minimizing the impact of advertisements on user experience.
In fact, Zuckerberg's unwillingness to let Facebook be filled with advertisements is considered one reason for the rapid rise of this social networking site and the swift decline of its original main competitor, MySpace. Martin Sorrell, CEO of the world's largest advertising company WPP, said: "Mark has a transcendent attitude towards advertising. He views Facebook as a platform providing communication convenience for people rather than for profit."
However, although Facebook's revenue reached $3.71 billion last year, 85% of it came from advertising income. This fact made Facebook realize that under the steady progress of the IPO process and the close attention to profit growth, it must strengthen its cooperation with Madison Avenue.
Launching a charm offensive
Insiders in the advertising industry revealed that Everson, David Fischer, Vice President of Business and Market Cooperation at Facebook, and Blake Chandlee, Vice President of Global Advertising Customer Relations at Facebook, have formed a "troika" specifically responsible for Facebook's "charm offensive."
Michael Hayes, President of Digital Media at the US advertising agency Initiative, commented on Facebook's attitude towards the advertising industry: "This attitude has undergone a complete change in the past 12 months. Before, their relationship with us was indeed not harmonious, but now they are trying to build such a harmonious relationship. I do feel that their interest in cooperating with us has increased."
In September last year, Facebook established a committee that regularly provides feedback on its advertising products and services. Members of this committee include senior executives of Facebook's advertising customers and representatives of several top advertising companies. In addition, Facebook commissioned Hayes' company to compare the success of Facebook's advertising with other media (such as television), which is the first time Facebook has commissioned such research.
Martin Sorrell indicated that Facebook plans to launch new advertising products at the end of February. Informed sources revealed that they will focus on new mobile advertising products, but he was unwilling to provide further details. A Facebook spokesperson declined to comment citing the quiet period policy before the IPO.
Company risk factors
Facebook, with 850 million global users, relies on advertising sales even more than CBS, which is the traditional media company most dependent on advertising, with two-thirds of its revenue coming from advertising. According to statistics from market research firm comScore, Facebook dominates the U.S. internet display advertising market, with a share of impressions in this category reaching 28% last year.
However, analysts stated that the prices of Facebook's majority of display ads are lower than other forms of internet advertising, such as popular brand advertisements on sites like Yahoo and search ads provided by Google. Facebook is actively taking measures to enhance the value of its ads to customers, such as integrating social functions into "sponsored content" and releasing ads highlighting users' friends liking a particular product.
A current major question is whether Facebook can further improve its advertising products. Due to privacy laws and uncertainties about how social networks use user data for targeted advertising, Facebook's advertising products are somewhat restricted. Hayes said: "Their advertising product opportunities are currently not well-established, and there are issues with effectiveness."
Facebook has been heavily criticized in the past for its use of personal user data. For example, in 2008, Facebook's Beacon advertising product automatically released information about products users purchased on Amazon without permission, drawing severe criticism. In its IPO documents, Facebook listed constantly changing privacy protection and data protection laws and regulations as two risk factors detrimental to its future growth.
Great potential
According to David Eastman, President of Digital Media Business at JWT Company under WPP, a major challenge for Facebook is how to find ways to profit from its role as an "identity intermediary" while satisfying Wall Street. Eastman said: "I am concerned that the IPO will affect Facebook's creativity. I am also concerned that the need for growth and profitability in the market will adversely affect Facebook's ability to find profitable methods."
If Everson and her team can achieve this balance, then Facebook will face broad growth opportunities in the future. According to data from market research firm Zenith Optimedia, the scale of internet advertising is expected to increase at an annual rate of 15.9% in the next few years, reaching $113 billion by 2014, and is estimated to reach $84.2 billion this year. Thus, the internet will become the second-largest advertising market after television. The television advertising market is expected to reach $215.7 billion by 2014.
Currently, advertising agencies invest little in the Facebook platform. According to Martin Sorrell, in 2011, WPP invested $1.6 billion in Google and only $200 million in Facebook. Martin Sorrell expects that WPP's investment in Google will increase to $2.3 billion this year and in Facebook to $400 million. He stated that this difference is mainly due to the greater difficulty of profiting from social media.
Martin Sorrell once said in 2006 that Google was both a friend and foe to WPP. He said that competition between Facebook and Google has intensified in recent years, and they maintain this kind of friendly yet competitive relationship. Martin Sorrell said: "Facebook is an excellent brand medium, but currently it focuses more on public relations than on advertising."
Struggle for dominance
In June last year, Google launched its own social network, Google+, directly competing with Facebook. Google+ currently shows no advertisements, and has been praised by users for its many innovative features, such as video chat technology and a design that allows users to divide their friends into different circles.
Martin Sorrell stated that Google+ and Facebook are ready to compete for dominance in the future social advertising industry. Martin Sorrell said: "Competition between the two companies is becoming increasingly fierce," and from the perspective of the advertising industry, this competition is good news for them because there are more options available.
Everson is undoubtedly at the forefront of the intense competition between Facebook and Google. Everson graduated from Harvard University in 1999 with an MBA degree and was named "Woman to Watch" by the US business journal Advertising Age in May last year. Eastman said: "Since Everson joined, Facebook has been very enthusiastic about working with advertising companies. This creates a lot of opportunities to establish closer relationships."