Facebook (FB) has evolved as of late in many ways. Not just its ever-changing user interface, most specifically the controversial Timeline feature, or even its even more controversial security settings - that in many instances, divulge user information to ad firms unknowingly to the user. Despite the enormity of these interface and user information issues, a behind the scenes maneuver represents even a bigger change. Facebook is presenting a kinder, gentler, face to the advertising community. Much of this approach may have to do with the upcoming public offering, some may have to do with it essentially growing up as a company and becoming part of the public company establishment who needs a better relationship with key main street players. i.e. advertisers.
Facebook generates its revenue from advertising, in fact approximately 85 percent of its $3.71 billion revenue was derived from advertising last year. But its tone towards many advertisers has been abrasive in many ways,- arrogant, antagonistic and dismissive. Much of that attitude has been accredit to its very young cofounder and CEO Mark Zuckerberg who, while recognizing the valuable asset of advertisers, was unwilling to let ads dominate the user experience of the site's purpose: communication and sharing of pictures and content between friends and contacts. Martin Sorrell, chief executive of WPP Plc, the world's largest advertising agency said of CEO Zuckerberg "He sees Facebook as a vehicle to open up communication, not to monetize."
But in the past 12-month period, industry sources have detected a new look on the face of the social media giant. Last September, Facebook reportedly set up a committee that included executives from brands that advertise on the site, as well as top advertising agencies. Facebook executives reached out to them to get their answers to questions and provide feedback on the site's advertising products and services.
Much credit for the new approach towards advertisers has gone to Caroline Everson, a recent Facebook acquisition from Microsoft (MSFT) where she headed advertising. Other forces of change include David Fischer, VP of Business and Marketing Partnerships, and Blake Chandlee, VP of Global Agency Relations. Reportedly, the trio is behind a concerted effort to change the tone of relations with large advertisers - as Facebook readies itself for the public offering - and as a public company to expand its role in online advertising. Facebook is expected to display sustainable growth plans, revenue streams, and profit with its business model, and those plans will be closely watched when it does go public. A large-scale plan to draw advertising revenue from its current estimated 850 million users is expected to emerge in the upcoming months.
The company is also suspected of measuring the effectiveness of its current online ads against those of competitors and other media outlets in an effort to develop new strategies and better results for its advertisers. The infamous "Like" button figures prominently as Facebook ties user "likes" to ad product and subsequently links other company products of similar nature to users of the social media site. Users with profiles on Facebook should expect to be marketed to more often with smart ads and perhaps ones that occupy more space on their screen. The company is not expected to try to walk a fine line in regards to sharing user information, even though it has come under criticism for the way it has used member data in the past, but instead is expected to ramp up its efforts to grow ad revenue. While certain measures are in place to address governing privacy laws and misleading profile parameter changes, a full fledge effort to maximize user information is expected to be underway. Facebook did address these issues in a recent regulatory filing, discussing the evolving nature of privacy and data protection laws as two risk factors that could impinge future growth.
Some industry media- and advertising-consulting firms project internet advertising to grow nearly 16% by 2014, representing $113 billion, up from an estimated $84 billion in 2012. That compares with TV advertising, which is expected to reach over $215 billion for the same period.
But just warming up to advertisers and extending a large user base may not be smooth sailing to ad revenue streams for Facebook. The likes of Google (GOOG), with its social media presence Google+, will compete, and Google has many more platforms and users across its product spectrum to offer to big brands. The period to watch Facebook closely will be the 12 months post their public offering date as it will try to maximize user information to its fullest, dance around privacy laws and disclosure issues, all while ramping up ad revenue streams to meet the critical review of its new found "friends" -- public shareholders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.