Facebook Looking to Move Marketers From Free Ads to 'Sponsored Stories'
NEW YORK - With Facebook, led by CEO Mark Zuckerberg, having filed for its much-anticipated IPO, Wall Street is looking more closely at future revenue opportunities for the social networking giant as it evaluates whether its expected market valuation of up to $100 billion is warranted.
New advertising opportunities will particularly come into focus with the Wall Street Journal on Friday reporting that the free ride for marketers on Facebook may be coming to an end.
So far, many advertisers simply created a Facebook page for free and got users to "like" them. But the social network hopes to turn many of them into paying advertisers via so-called "Sponsored Stories."
Some marketers like Omaha, Neb.-based retailer Gordmans have already converted to that new form of advertising, which Facebook launched last year. Veronica Stecker, Gordmans' media manager, told the Journal that the company felt its free messages started getting drowned out. "There is simply more competition," she said. The firm therefore started using paid posts that Facebook users find in their News Feed, which displays status updates from friends, after they "like" the brand.
For example, Gordmans recently sponsored a story that asked fans to "show your local Gordmans the love" by participating in a vote for their favorite store, allowing for a word-of-mouth campaign, the Journal said.
Sponsored Stories have generated click rates of up to four times those of traditional Facebook ads, Stecker told the Journal. The "show your love" story was seen by 118,000 Facebook users, compared to unpaid stories' typical reach of 16,000-20,000, the Journal said.
"If Facebook wants to derive more revenue from big brand advertisers, they want to be in that News Feed where everybody's eyeballs are," said eMarketer analyst Debra Williamson.
In its IPO prospectus, Facebook reported $3.71 billion in revenue in 2011, with 85 percent of that coming from advertising. Williamson told the Journal that this is nearly $500 million less than she had expected. Facebook declined to comment.
The Journal didn't provide estimates for how much revenue Sponsored Stories could generate for Facebook.