October 3, 2011, 2:45 PM

Facebook ads get friendlier

The social network’s Premium ad unit shows consumers ads from brands their friends Like.

Lead Photo

A shot of the new Facebook ad format.

Looking to capture more advertising dollars, Facebook Inc. today rolled out an expanded version of its Premium ad service that combines a brand’s Page posts with social context. Officially, Facebook calls the format the “new expanded Premium ad unit.”

The social network also rolled out a measurement tool to help marketers understand how consumers interact with their posts.  

The ads feature social context, such as if a friend Liked a post. The ads appear on the right side of a consumer’s home page where the Facebook user reads his news feed—at the top of the ad is the label “Sponsored” followed by a message noting that a friend Likes a piece of content or a brand. Marketers can use detailed information, supplied by consumers, to precisely target the consumers they wish to reach.

The new ad unit is similar to Sponsored Stories, an ad format on the social network that enables companies to pay to highlight posts or actions that a consumer’s Facebook friend has made that relate to the advertiser. However, unlike Sponsored Stories the ads include a message from the marketer and do not appear in the news feed.

The ads’ placement next to the news feed is important because that’s where most users interact with content on the social network, says a Facebook spokeswoman. Indeed, users are 40 to 150 times more likely to consume branded content in the news feed than to visit a brand’s Facebook page, according to web measurement firm comScore Inc.

The inclusion of social context in an ad could be transformative, says Lou Kerner, vice president of equity research at Wedbush Securities. “The idea of letting an advertiser show you an ad that your friend engaged with is one of the biggest steps forward in advertising ever,” he says. “We’re in the top half of the first inning of what social ads will be, but what social ads may be and can be is incredibly exciting.” 

The approach plays off Facebook’s strength—consumers like to share what they Like on the social network, says Sean Corcoran, Forrester Research Inc. senior analyst. More than 2 billion posts are Liked or commented on every day, says the social network. Leveraging those interactions is a far more effective approach than a simple display ad, he says.

“It’s no secret that most people don’t trust advertising,” says Corcoran. “But when an ad features a friend’s endorsement it adds an element of value and trust.”

Because the ads rely on consumers’ interactions with a brand’s content they are primarily aimed at larger brands with thousands of active fans, says Corcoran. The rollout dovetails with an announcement last week that the social network is giving away free advertising to small businesses. The moves reflect that the social network is increasingly committed to advertising on Facebook, he says. “They rely heavily on it from a revenue perspective and they realize that there’s a huge opportunity to drive business through advertising,” he says.

Because of Facebook’s new format, in which Top Stories appear at the top of consumers’ home pages, retailers need to use multiple ways to engage consumers to draw eyes to their posts, says Corcoran. “That’s made it so that businesses almost have to use ads to make their Pages work well,” he says. “To have a Top Story a marketer’s post has to be relevant. It’s almost like search engine optimization. Marketers need to find ways to get consumers to interact with their content.”

To help marketers determine what content resonates, Facebook also launched a new Page Insights tool that enables marketers to see how many consumers view their posts, which pieces of their content consumers share and how many friends their fans have. “We want to enable marketers to be able to measure and understand how their posts can have more impact,” says the Facebook spokeswoman.

Facebook also rolled out a Page Insights application programming interface, or API, that enables third-party vendors to develop customized insights tools. For instance, Webtrends developed a metric it dubbed Hoverstats that assigns a score to individual Facebook page posts based on unique impressions.

Those types of insights could produce a “virtuous cycle” that spurs marketers to produce more relevant content that consumers are more likely to share, says Wedbush’s Kerner.

Total revenues at Facebook, which include those from advertising as well as Facebook Credits and other sources, will reach $4.27 billion this year, according to eMarketer. That’s more than twice as high as the $2.0 billion Facebook is estimated to have earned in 2010. Ad revenues will make up 89% of the total this year, down from 95% in 2009.

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