Facebook plays ball with Madison Ave

Facebook is finally learning to speak the language of the advertising industry. It is giving out awards.

The Facebook Studio Awards, to be bestowed in two weeks on agencies and brands that the company judges are using the social network effectively, represent its most overt effort yet to court Madison Avenue.

Its relationships with advertising agencies are critical if Facebook is to justify its market valuation - expected to top $80bn when it goes public later this year - given that it relies on advertising for 85 per cent of its revenue. While that percentage is declining as Facebook diversifies its revenue streams, the company admits adverts will remain its primary source of income for the foreseeable future.

Its share of US online display advertising will reach 20 per cent this year, according to eMarketer. That would beat both Google and Yahoo, each with about 12 per cent. Yet Facebook still lags far behind Google when it comes to overall online ad revenues, taking an expected 8 per cent this year, compared with Google's 45 per cent, including search.

Facebook's more active engagement with ad agencies points to a steep learning curve. It hired Carolyn Everson, a top advertising executive at Microsoft, and stationed her in New York, demonstrating a serious commitment to Madison Avenue, analysts say. The company will also hold an event this month in New York for senior marketing executives where it is expected to announce a raft of new ways to advertise.

But Facebook's hacker mantra of "move fast and break things" has sometimes upset adland's genteel executives. Facebook has often made radical changes to its site without warning agencies or clients, leaving them "scrambling" to get pages working, says David Jones, chief executive of Havas, the marketing services group.

"In the same way they've learnt from dealing with consumers, they have learnt to be very agency friendly, Mr Jones says. "There's a real spirit of innovation ... Any issues are more about the life stage of the business rather than attitudinal."

Grumbles about Facebook's resources - and arrogance - remain. Nonetheless, many marketing executives say it has become more welcoming and accommodating to them in the last year - a marked contrast to Google's efforts when the search company was at a similar stage in its corporate development.

Back in 2004, when Google was about to make its stock market debut, it had a reputation for trying to circumvent agencies and talk directly with clients. Google has long since reversed that tactic as it chases a bigger slice of the media budgets agencies control and is now seen as the "gold standard" among technology companies in their relationship with agencies, says Mr Jones.

Facebook, which employs many ex-Googlers, seems to have learnt from that experience. Agencies and their clients are now queueing up to make the pilgrimage to its Silicon Valley offices.

"They are the new kid on the block with a massive scale of audience and everyone wants to understand them," says Curt Hecht, head of Publicis Groupe's digital unit.

Despite the huge interest, Facebook has not yet hit on a single winning ad format akin to Google's AdWords, already successful when it went public.

Facebook adverts are unlike standard web banners. Many companies use Facebook adverts to bolster the count of fans for their brand pages. Others involve creative components that encourage the social network's 850m users to share an advert with friends.

"It's not just about standard promotion," said David Sable, one of the Facebook Studio Awards judges, and chief executive of Young & Rubicam, an agency with clients including Panasonic and Craftsman. "It's about what happens when you share an advert, and then someone else shares it."

Facebook is trying to nudge agencies to go beyond chasing "Likes" or "fans" for their own sake.

"So what if you have 10m fans? The question is what are you going to do to activate that group," Mr Sable says.

For example, Tums developed a simple game that let users throw virtual tomatoes at pictures of their friends, instead of simply adding fans to the antacid maker's Facebook page.

This unusual form of advertising requires skills that not all agencies have yet mastered - a major risk, Facebook warned in its IPO filing. "Advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven," the company said.

Facebook has partnered with Nielsen, the media measurement company, to develop a system to improve measurement of campaign success. But as it tries to balance the promise of personalisation with the power of reach, many advertisers just cross their fingers and hope the adverts go viral.

"If it's exponential, it works," said Mr Sable. "That's priceless, frankly."

Additional reporting by April Dembosky

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