Bloomberg BusinessWeek Excerpt: Sandberg On Facebook’s Approach To Ads

Facebook COO Sheryl Sandberg makes the cover of Bloomberg BusinessWeek‘s latest issue, profiled in an article by Brad Stone that describes her effort to make the social network more efficient and that also spotlights her human side. (Choice quote: “I’ve cried at work. I’ve cried to Mark. He was great. He was like, ‘do you want a hug? Are you okay?”). The article also takes a look at Facebook’s approach to advertising. Read on for an excerpt.

Bloomberg BusinessWeek: Why Facebook Needs Sheryl Sandberg

“Social ads” on Facebook perch unobtrusively on the right border of the page and usually specify which of a member’s friends has “liked” or commented on that particular ad or advertiser. The data company Webtrends says that only around half of one percent of people who see these ads actually click on them; yet Facebook pulled in an estimated $2 billion in sales in 2010, Bloomberg has reported, and is on track to do twice that in 2011. Facebook executives argue that the click-through numbers are not that meaningful; they say that people remember ads better and are more likely to make purchases when their friends endorse products.

Advertisers appear to be buying that logic. The social network now serves up nearly one-third of the display advertising that Internet users see in the U.S., according to comScore (NSDQ: SCOR) (SCOR), and delivers twice as many ad impressions as its closest rival, Yahoo! (NSDQ: YHOO) (YHOO).

Sandberg now wants to let advertisers burrow even deeper into the social fabric of the site. When a user “likes” an ad, checks into a restaurant using the Facebook app on their mobile phone, or leaves a comment on the profile page of an advertiser, that action gets broadcast into friend’s newsfeeds, where it often gets lost amid the clutter of other updates. A new tool, called Sponsored Stories, allows advertisers to pay to turn that member’s action into an ad, which will then be seen by the user’s friends on the portion of the page with advertising.

It may sound obscure, but if you’re an advertiser, there’s nothing better than converting customers into unpaid endorsers. Michael Lazerow, chief executive of Buddy Media, which helps brands advertise on Facebook, predicts that the largest advertisers will cross the $100 million spending threshold on Facebook this year. “The ones who were spending zero last year are spending millions this year,” he says. “The ones who were spending millions are spending tens of millions.”. ?¨

Facebook’s tentacles now touch millions of other websites, from the Huffington Post to (NSDQ: AMZN), that use its reader comment system, and its “like” and “send” buttons, to allow their users to share their content with their friends on the social network. Under Sandberg’s direction, Facebook has begun preaching the mantra of what it calls “social design” to companies that want to remake themselves for the fashionable age of social media. It sets up Facebook brilliantly — those social ads may someday start showing up on any site that has a “like” button.

Sandberg helped to develop much of this basic playbook during her time at Google (NSDQ: GOOG). Facebook’s ads are meant to fit into the context of the social network, just as Google’s targeted search ads complement its algorithmically generated search results. Sandberg has even organized Facebook’s advertising group in the same way as Google’s, with a direct sales organization reaching out to the world’s largest brands, an inside sales team catering to medium-size marketers, and an online sales group that builds self-help tools for the smallest companies. She has plucked many of her top lieutenants at Facebook from Google as well.

Given Facebook’s trajectory, Google losing Sandberg could become legendary as a tech industry misstep-like operating system pioneer Gary Kildall flying off in his personal plane in 1980 instead of closing a deal with IBM, which opened the door for Bill Gates to license MS-DOS to the computing giant.

Read the piece in its entirety.