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Summary:

Facebook showed off a new suite of premium ads that enables brands to create more engaging stories for users and finally brings marketing to Facebook’s mobile properties. It’s part of a broad effort to generate revenue for the social network as it prepares to go public.

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Facebook showed off a new suite of premium ads Wednesday that it thinks will allow advertisers to interact more directly with their customers and finally brings marketing to Facebook’s mobile properties. The premium ads, some details of which were first shared here on GigaOM, include bigger ads that originate from a sponsor’s page and let Facebook users “like” and comment on those ads just like on a regular post. Facebook’s mobile site and apps will now feature the same premium ads, addressing a big shortcoming for Facebook, which has 425 million mobile users but derives no revenue from that traffic.

This revamped approach to Facebook advertising comes almost a month after Facebook filed to go public seeking what could be a record amount of public investment. The company continues to grow and currently has more than 800 million active users, but questions remain about how potential revenue Facebook can find. It generated $3.71 billion in revenue in 2011, according to its S-1, with about 85 percent coming from advertising. This year, it’s expected to generate $5.78 billion in ad revenue globally, according to eMarketer.

With its new premium ads, Facebook wants advertisers to create more organic ads based around what they are already doing on their brand pages. The thinking is that unique content, rather than traditional ads, will appeal more to users and will encourage more sharing and interactivity. In order to make that happen, Facebook page owners can add photos, videos, events, links, questions and daily-deal type offers in an ad format that will appear first on a brand’s page. Facebook will work to place those ads on the right hand side of a fan’s home page or in their news feed on desktop and mobile. Those three categories of ads–brand pages, home pages, and news feeds–are available immediately while a fourth ad unit on a user log-out page will roll out in April. Facebook is also phasing out its classic premium ads but it will continue to support its auction of display ads that appear on the right rail.

The pages and posts on the page will be free for advertisers. They will pay to get distribution on the site through Facebook’s new reach generator, which will charge brands based on the number of their fans.

Facebook said posts by brands are typically seen by 16 percent of their fans. But with the reach generator, new ads will be seen by a greater number of a brand’s fans, including 50 percent of fans on a weekly basis and 75 percent over the course of a month. The company promised this strategy can boost click through rates of stories by 5-10x over traditional ads.

“Ads are good,” said Mike Hoefflinger, director of global business marketing. “But stories, it turns out, are better.”

Advertisers can now take advantage of updated brand pages that are more striking than their predecessors and include the Timeline feature recently rolled out to users. Facebook users can see videos, offers and pictures pinned by sponsors, and their friends’ interactions will be surfaced on the page first. There’s also a messaging function for people to talk directly to brands.

The mobile placement of the premium ads helps fill in the overall revenue picture for Facebook, which admitted in its S-1 that it doesn’t have any meaningful revenue from mobile. Though there was speculation that Facebook could create new ad types of mobile, the mobile initiative is just an offshoot of Facebook’s overall marketing strategy. But that should still provide a good shot of revenue through mobile, which is how many users prefer to interact with Facebook.  MobileSquare estimated that Facebook could generate $1.2 billion just from the U.S. and five countries in Europe.

The transition from ads to stories makes sense for Facebook, which has long stressed the importance of social connectivity and interactivity. The company believes that social changes everything and it’s showing that applies to advertising as well. Sheryl Sandberg, Facebook’s COO said this is how marketing needs to evolve on line with the advent of social media.

“People don’t expect to be talked at anymore, they want to be a full part of the conversation,” Sandberg said. “Today we can’t just talk, we need to listen as well.”

But implementing this new strategy could be tricky for both Facebook and its advertisers.

Users may have liked a brand but it remains to be seen how they’ll react to bigger ads appearing in their news feed. And if a user has become friends with a lot of brands, it means they’ll be seeing even more sponsored stories in their news stream. This might be welcome for some stories but it could get overwhelming or tedious over time and could make some users become hesitant to become a fan of a brand, knowing that it will mean more ads in their feed.

It’s always been clear that Facebook survives on advertising but this new strategy makes ads more prominent in the core experience. Facebook, for its part, says users already have 150 million interactions with businesses on Facebook every day.

Another question is whether brands will rise to the opportunity of advertising on Facebook. This will require more creativity and a concerted effort to engage with users as if they were an actual person, not a big corporation. That will take some adjustment for advertisers and a shift in the way they operate. And for some advertisers who liked Facebook’s old engagement ads, it might be seem harder to get a broad message across at one time.

Nigel Morris, CEO of Aegis Media North America, a global marketing company, said brands will definitely need to step up and create engaging content on a sustained basis. He said the premium ads can highlight good content but, it can also “amplify the vacuousness of some (advertising) stuff.”

But if Facebook can get advertisers on board and get them to commit, they’ll make the site even more dynamic. When done well, the ads can add some richness to the service and create new relationships between users and brands.

We’ll have to see how the users react. Any change to the Facebook experience tends to set off a lot of grumbling and this may not be an exception. However, the new strategy shows that Facebook is determined to make its network even more social not only for its members but its advertisers too.

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  1. “The thinking is that unique content, rather than traditional ads, will appeal more to users and will encourage more sharing and interactivity.”

    This is only going to work if creative entertainment advertising and social branding come together to create a whole new value proposition for the user/consumer. And no something like Groupon wont do it this time!

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