Mark Zuckerberg at F8 in 2010.
(Credit: James Martin/CNET)
With a reach approaching 15 percent of the world's population, Facebook is a thriving media business. In the last quarter alone, it raked in more $1 billion in revenue, almost entirely from advertising.
But to hear some people at big ad agencies talk, it could be a whole lot more.
And that's the double-edged sword hanging over Facebook these days, for the company has become a victim of its own success. It's automating its process and using technology to increase efficiency. But that's not the same as dealing with a human being; big advertisers are a needy bunch who want hand-holding. However, plenty say they can't even find anyone at Facebook to take their calls -- or their money.
Here, for instance, is Mike Parker, the co-president of U.S. operations of Tribal DDB, talking about his frustration with Facebook: "For the longest time, we've been trying to call Facebook to do business with them and there's nobody to pick up the call," said Parker. "They're very focused on the consumer experience, and less focused on revenue and working with advertisers."
And here's David Smith, the CEO of digital agency Mediasmith: "Facebook just doesn't seem to care. They're still trying to grow this thing. The question is, do they want the big bucks?"
Another exec at one of the world's biggest interactive agencies, who spoke on the condition of anonymity, shared that frustration: "We know the reach is there," she said. "The problem is that Facebook isn't willing to do anything different for the client that wants to spend $10,000 versus $10 million."
These aren't the sorts of business-model endorsements Facebook needs as it marches toward its IPO, a likely blockbuster event that's on course to go down in the record books and possibly value the company at $100 billion, roughly half that of the far more profitable Google.
Growing pains
So what's going on here? Why all the bad feelings from the very community that's providing Facebook with its livelihood?
The famous well-worn refrain from "The Godfather" would apply here: It's most definitely not personal. But Facebook is a fast-growing company. From March 31, 2011, to March 31 of this year, the number of full-time employees rose almost 48 percent to 3,539. Along with that head-spinning growth, Facebook also is suffering through the growing pains that have afflicted other young high-flyers in the technology constellation. Recall that in the mid-1990s, Netscape also found itself unable to adequately handle requests both from customers and third-party developers. It wasn't long before some began sniping at Netscape, accusing the company of arrogance when it was nothing of the sort. But the perception became a lingering reality for many people and it was something that Netscape had a hard time moving past.
To be sure, Facebook has built a wildly successful business with its self-service ad system, which allows advertisers to slice and dice their message at segments of Facebook's users according to location or gender or some other consideration with a degree of accuracy and specificity that's difficult elsewhere on the Web. The company has recently begun testing upgrades to the system.
Even Google took a long time to expand beyond its self-service ad system; today, its sales people blanket the world. (One irony: Facebook COO, Sheryl Sandberg, who was the vice president of Global Online Sales and Operations at Google before joining Facebook, noted in an interview with Charlie Rose that "Google is fundamentally about, you know, algorithms and machine burning.")
But the big ad folks knocking on Facebook's door want more than the company has thus far been willing to give -- at least in the form of ad formats that agencies want. And every marketer wants to find more ways to reach an audience that now sits at an unprecedented 900 million strong.
When Mark Zuckerberg bailed from Harvard and headed to Silicon Valley to keep connecting the world, he certainly wasn't thinking about making a place for advertisers. "Facebook was originally not created to be a company," he begins his letter to shareholders in the S-1. "It was built to accomplish a social mission -- to make the world more open and connected." And that mission, he writes, continues to underlie all decisions the company makes.
With its IPO on the horizon -- Facebook's road show could begin as early as next week -- there also are concerns from advertisers about the return they are getting from advertising with the social network. A Wall Street Journal story raises that question, with some advertisers voicing doubts about the return they get from spending money with social networks. That's especially important now with investors soon to decide whether to reward or reject that $100 billion valuation.
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It's not as if Facebook isn't trying. Over the past several months, the company has been working to enhance its appeal to large brands. This year, for instance, Facebook expanded so-called sponsored stories on the site so that brands can create stories that show up in a news feed of fans and their friends. Also, Facebook started Reach Generator with a splashy debut at New York's Natural History Museum in February, which courted big advertisers. What's more, Facebook has also created a group which is specially tasked with the outreach work on Madison Avenue to improving the company's agency relations. The program has been under way for the last year.
But Facebook is finding it hard to navigate past a corporate culture clash.
The brands want to collaborate more with Facebook. They're looking for more flexibility so that teams from both sides can work together to come up with creative presentations. For now, at least, the answer from Facebook is no.
This is a festering issue that could cause Facebook grief later on. Already, there are signs that this disconnect is having an impact. In a pre-IPO analysis compiled by financial research firm ITG, almost half of the 21 media professionals it surveyed who advertised with the social network indicated they do not plan to increase their spending on Facebook throughout the year; 12 percent expect to cut their spending.
It's easy to see why. One agency exec, for example, recounted trying to work with Facebook on several multimillion commitments that he ultimately gave up on. The talks failed, he said, because his Facebook counterpart would not budge when it came to entertaining different ways to message "fans" of the brands he represents.
The upshot: The money he spends on Facebook for those clients -- anywhere from 5 percent to 15 percent of their media budgets -- also won't budge.
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