From The Sunday Times
October 28, 2007
Advertisers leap into Facebook
Leading brands are realising that social networking sites mean serious business
ANY day soon, rumour has it, Apple, Coca-Cola, Condé Nast, General Motors, Nike and a host of other world-famous brand names will sign an advertising deal with the hottest company on the planet.
It’s likely to be one of the most talked-about ad deals of the year. The company they are jockeying to sign up with is attracting 200,000 new users a day. Last week it was valued at $15 billion (£7.3 billion), though it has yet to make a profit.
Facebook is a three-and-a-half year old “social network” site that offers people a way of communicating with their friends online. So far, some 50m people have signed up to it. The company says it expects to break even this year.
Last week, Microsoft beat Google to buy a small stake in the firm, valuing it at $15 billion — more than twice as much as British Airways, a company that made a profit of $602m last year.
Facebook is the latest in a series of ever-bigger deals for a new generation of so-called web 2.0 companies.
Once again, internet start-ups with lots of buzz — but next-to-no profits — are being snapped up for huge sums by the world’s big media and technology firms.
For others, including Microsoft, the prices are not irrational but a concrete sign of the value of online advertising.
In recent years, internet advertising has soared as advertisers have shifted more and more of their spending from television, newspapers and other traditional media to a host of websites.
Online advertising is now a $16.5 billion business in America, according to Jupiter Research. Shoppers spend 10% of their money online. Compared with mature advertising markets such as TV (worth $74 billion in America), online advertising spending remains small, but it is growing by about 14% a year, and by 2011 it will be worth $32.1 billion.
Only a small slice of this goes to “social network” sites like Facebook and its larger rival MySpace (owned by Sunday Times parent News Corporation).
This year, according to eMarketer, $900m will be spent advertising on social-networking sites in America and $335m elsewhere. The growth of these sites is phenomenal. Facebook believes with Microsoft’s help it can reach 300m users worldwide in the next few years.
“It’s anybody’s guess how big Facebook will get,” said John Delaney, an analyst with the Ovum consultancy. “But 300m doesn’t sound completely ridiculous.”
Other sites with similar features to Facebook and MySpace have failed to take off — the British site Friendsreunited and America’s Friendster have both been left behind. But the success of Facebook and MySpace shows “there is a market for people to interact on the net in a similar way to the way they interact in real life”, said Delaney.
Advertisers, too, are increasingly enamoured of the sites.
Carlton Cribb, the digital buying director at Zed Media, a London ad agency, said clients now see online sites as an intrinsic part of their advertising strategy.
“In the past couple of years there has been a major change from the clients’ perspective,” he said. “Online was kept very separate from the rest of the budget. Now online is another viable medium for reaching their audience — it’s part of the media mix.” A part of the mix that is growing swiftly.
Cribb said these were problems to which the sites and advertisers were now finding solutions in what are still early days for a rapidly changing medium.
When Facebook boss Mark Zuckerberg started the site it offered simple web pages for college students to list information about themselves and send messages to friends. Increasingly the site and its rivals offer an array of services, from e-mail to online photo galleries, that have historically existed independently.
The aim is to make Facebook the first port of call for internet users in the way that many people now have Google as their home page.
It’s not a new strategy — AOL tried something similar and failed and Yahoo, which also courted Facebook, has a similar approach. But Facebook has the buzz and the momentum to more than rattle its rivals. As it adds new services, advertisers will be watching developments as closely as Facebook’s users, Google, MySpace and Yahoo.
Unlike the first internet boom, “big media” has in the main fought shy of paying huge prices for online firms. News Corp bought MySpace in 2005 for $649m and more than recouped its investment with an ad deal with Google worth $900m over three years.
For Microsoft the $240m investment is chump change. But it marks a significant evolution for the software giant as it increasingly moves its muscle online. Whether or not Facebook lives up to its $15 billion promise remains to be seen.
1.
(a) Name four companies listed in the passage that are looking to advertise with Facebook. [6]
(b) From the passage, state the expenditure on online advertising currently and prediction for 2011, and the investment into social-networking in 2008. [8]
(c) Explain what is meant in the passage by:
(i) ‘social network’ and [3]
(ii) ‘big media’. [3]
2.
(a) In what ways does the passage suggest the usage of social-networking? [5]
(b) Using your wider knowledge of new media technologies, discuss the importance of social-networking to young people today. [20]
Answer either question 3 or question 4.
You should make detailed references to examples from your case study material to support points made in your answer.
3. How important to companies is advertising on the Internet?
[45]
4. To what extent do new media technologies cause a computer culture for youngsters today? [45]
Easy.
