With the launch of its latest ad unit, “Sponsored Stories,” Facebook is turning users' in-network activities — status updates, Places check-ins, Likes, app activity — into advertisements.
Mark Zuckerberg’s biggest challenge remains how to monetize advertising in a non-intrusive way. “Sponsored Stories” is a euphemism for a digital transformation from information-based to social-based advertising.
“We’re moving from the ‘wisdom of crowds’ to the ‘wisdom of friends,’” says Facebook executive Dan Rose of the new ad format.
Rose, addressing a conference in Munich on Monday, went on to say that an ad accompanied by a friend’s name increases recall by 60%. “Word of mouth marketing is the best advertising. At Facebook, we are implementing it at scale.”
The site's advertising revenue is robust, with eMarketer estimates of their doubling revenue in 2011 to $4 billion. This latest move leverages “social context” for enhanced engagement.
“It’s about taking the word of mouth recommendations and endorsements that are happening across Facebook every day and increasing the distribution of those,” said Jim Squires, a product marketing lead at Facebook.
"The advertiser is not controlling the message; it’s about actions,” he added.
“Sponsored Stories” enables users to see reports from their friends, not just ad copy, and lets advertisers increase buzz about their campaigns. The new unit is priced on both a cost per click and cost per impression basis, and the technology will roll out first to managed accounts, and then to self-service accounts, in the coming weeks.
Brand partners at launch Starbucks, Coca-Cola, Levi’s, and Anheuser-Busch, as well as non-profits (RED) and UNICEF, Amnesty International, Women for Women and the Alzheimer’s Association.
How it works: If a FB user checks in at Starbucks via Facebook Places, Starbucks can copy that information from the user’s News Feed and post it to the Facebook profile of anyone linked to that user’s News Feed.
The technology also applies to fan pages posts, i.e., if a band sends out a new song or upcoming concert information. Marketers can’t edit news items selected for “Sponsored Stories,” they can only be highlighted and displayed.
For some, this signals a change of heart for FB. "Mark Zuckerberg has always been adamant that the user experience for Facebook had to come first, and monetization second," said Carl D. Howe, director of research for the Yankee Group. "Should Facebook ramp up its advertising emphasis, that would imply to me that he's changed his mind."
The inevitability of the FB move comes as speculation has Twitter’s advertising surpassing $100 million in 2011 – a factor of three over last year.
Laura DiDio, principal analyst at ITIC, told the E-Commerce Times, "They're not doing this just to have people play 'FarmVille.' … If Twitter is doing it, Google is doing it, and Yahoo is doing it, it's inevitable that Facebook is going to do it. Zuckerberg is not going to be outflanked by the other wunderkinds."