Facebook Risks Making No Friends With Google Challenge in Mobile Ads: Tech

When she logs on to the social-networking site from her BlackBerry or iPad, she sees ads for Caribbean travel deals and a local clothing boutique. Facebook (FB) used to only have ads in the personal-computer version — not the mobile apps — and Drucker Fornaris isn’t happy about the change.

The ads are “incredibly annoying,” she said.

As Facebook looks to mobile advertising for its next wave of growth, that reaction is something it wants to avoid. The social-networking service has about 425 million mobile users — more than half its total membership — and advertisers are eager to target them. The challenge is to do it without overwhelming people, who can be more sensitive to ads appearing on their mobile devices.

“The interest is very high — the advertisers are more than willing,” said Marco Veremis, president of Upstream Systems, which provides mobile-advertising technology to clients such as Coca-Cola Co. (KO) and Nestle SA. “The issue is, mobile is a lot more personal and intimate. The danger of someone being angry over invasion of privacy is at the top of the mind.”

Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment on the strategy.

Big Payoff

In pushing into the market, Facebook is challenging Google Inc. (GOOG), which is the leading seller of ad space on mobile devices. The total mobile-ad industry may bring in almost $11 billion in revenue by 2016 in the U.S. alone, up from $2.61 billion this year, according to research firm EMarketer Inc. So far, Google accounts for more than 50 percent of those ads, making $750 million in sales for the Mountain View, California-based company last year, EMarketer estimates.igvW90.PwHE8

Starting March 1, Facebook (FB) began allowing brands that people “like” to send messages and ads to those users’ mobile news feeds. If the user then makes a comment on one of the items or “likes” it, the person’s friends get those promotions on their own phones and tablets as well — whether they asked for them or not. The world’s largest social network, which filed for an initial public offering last month, is counting on mobile ads to bring in a new source of revenue and reassure investors that it can maintain growth.

If Facebook and its advertisers can work through the challenges, the payoff may be bigger than what the company gets from its traditional PC ads, according to Colby Atwood, president of consulting firm Borrell Associates Inc. Facebook could generate more than $1.2 billion from mobile ads in the program’s first year, estimates another firm, Mobile Squared.

‘Creepy Factor’

While Google has drawn criticism over how it collects personal data, it relies on more straightforward advertising than Facebook — running Internet-search ads or graphical commercials within applications, for instance. Facebook’s approach counts in part on its members promoting companies among their friends. Facebook members who “like” brands may not realize their preferences are used as the basis for advertising sent to other people.

“It certainly does set off some creepy factor,” said Parker Higgins, an activist at the Electronic Frontier Foundation, a nonprofit group in San Francisco. “It does feel intrusive, and people may be upset.”

At the time of its IPO filing last month, Facebook made no ad revenue from its mobile service. The new expansion could bolster the company’s case with shareholders as it seeks a valuation that people familiar with the matter peg at as much as $100 billion.

Users’ Discomfort

While advertisers have shown interest in the mobile approach, users are more resistant. About 67 percent of Americans would find it unacceptable to receive unsolicited ads on their phone, according to a survey of 2,105 U.S. consumers that was commissioned by Upstream.

When it was unveiled earlier this year, the mobile-ad push was presented as a way to provide promotions and offers that users would want. The ads, called Sponsored Stories, began appearing in the U.S. on the iPhone, Android devices and Facebook’s mobile website at the beginning of this month.

“Our vision is that interaction on Facebook with a brand is as exciting as it is with family,” Chris Cox, vice president of product at Facebook, said last month at the company’s FMC conference for marketers in New York.

Many users aren’t bothered by the Sponsored Stories.

“It makes me feel like I am in touch with the brands that I like,” said Christopher Brown IV, a 40-year-old Chicagoan who handles internal communications for a financial company. He has “liked” such brands as the Four Seasons, BMW and Gucci. “It doesn’t come across as an advertisement,” Brown said.

No ‘Like’

Even so, the Facebook friends who view the ads aren’t the ones who clicked “like” in the first place. That makes the promotions irritating, Drucker Fornaris said, “though it hasn’t gotten to the point where I’d want to quit Facebook (FB).”

Marketers are more interested in Facebook’s mobile platform than those of other social-media companies, said Elio Narciso, chief executive officer of mobile-ad agency MobAVE. Among his 100 clients, those inquiring about mobile ads on Facebook outnumber those interested in Twitter Inc. by 4-to-1, Narciso said.

It’s appealing to clients because they already use Facebook themselves and understand the service, said Sacha Xavier Reich, a partner at Neo@Ogilvy, which helps customers buy ads.

“Facebook is safe grounds for clients,” she said.

The hurdle will be getting users acclimated to the idea — something that could take time.

“The biggest potential problem is: Will users be overwhelmed with ads?” Debra Aho Williamson, an analyst at New York-based EMarketer. “People aren’t used to seeing ads on their mobiles.”



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