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Facebook, the social networking site that brings together 845 million active users each month, is now giving the same treatment to advertising.
Next week, the Facebook will be launching a new line of premium ads. Rather than the static sidebar ads users are familiar with, Facebook's premium ads will automatically show you which members of your network "like" the thing being promoted, whether it's a band, television show, movie or consumer product.
In making this change, the business side of Facebook is adopting a maxim long championed by advertising specialists and digital media experts: make it social.
The research behind social ads is compelling. According to a Jan. 31 report by WebTrends, the click-through rate for social ads that leverage the things your friends like (.049 percent) is twice as high as traditional advertising (.024 percent). Second, social ads have a longer shelf life. Whereas existing Facebook ads stay fresh for three to four days, social ads, which bounce from user to user like viral videos, last three to four times longer.
Facebook's internals studies underscore this research. According to leaked documents that first surfaced on GigaOm, the company expects the new ads to perform 40 to 80 percent better than traditional ones.
On its surface, this information arrives as a welcome piece of positive news for a company in the midst of a highly publicized IPO launch. With $3.1 billion in ad revenue in 2011 and an expected $5 billion in 2012, it's no surprise that Fast Company suggested that, "2012 is being hailed as the year of Facebook commerce," in it's March issue.
Underneath the fanfare, however, significant issues are still in play. Even if Facebook's social ads perform as projected, they are more expensive and continue to underperform the industry average of .1 percent. When it comes to ad revenue, Facebook is certainly doing better than it has in the past. As Bob Hoffman, author of 101 Contrarian Ideas About Advertising, pointed out in a Dec. 2011 blog post, the company still has a long way to go.
"People spend almost four times more time with Facebook than Google," said Hoffman, "but it generates about 1/7 the percent of online ad revenue."