With the prospect of an IPO looming late next year, Facebook is determined to prove it can be as profitable as it is popular, looking to land more seven- and eight-figure tentpole ad deals with major marketers.
That's why it spent last week cozying up to big spenders -- even piping in CEO Mark Zuckerberg via live video feed to its New York office -- for the first meeting of Facebook's "client council," which consists of representatives from six big brands, including Coca-Cola and Walmart, along with a half-dozen major agency-holding groups.
But the task isn't quite that simple: As more marketers consider committing big dollars to the social-networking giant, Facebook must address concerns ranging from a lack of ROI metrics to its constant change, which can catch users and clients off-guard.
The challenge for Facebook is "trying to innovate from a product perspective and at the same time establish some consistency from a commercial standpoint," said Nigel Morris, CEO of Aegis Media Americas, which is part of the client council.
The best example of a tentpole deal to date is with Diageo (a client council member), whose commitment is worth more than $10 million and promises "to provide metrics to help Diageo define ROI and performance across its priority brands." Facebook is also offering a sneak peek at new features and ad products it's testing to some advertisers that have committed to year-long deals.
With special attention and programs, Facebook is looking to become the first place brands go to spend their online ad dollars, though it's also notable that older media companies such as Google, Yahoo and Microsoft have all convened similar advertising-client councils.
According to Carolyn Everson, VP-global ad sales, the company is building out its global agency team and has designated liaisons dedicated to overseeing the relationship with Omnicom, WPP and Aegis. It's also hiring for Publicis, Interpublic and Havas and growing its global account team to match with global companies that have an appetite for emerging markets. "Agencies are responsible for over half of ad spend globally," she said. "At core we believe we must invest time and resources with agencies at all stages, through creative to execution of a media campaign."
To that end Facebook has unveiled a premium ad unit geared toward big brands already spending millions every year on Facebook ads and a revamped measurement -- or "Insights" -- tool designed to provide better measurement. It also spent the week presenting an array of case studies for campaigns on fan pages from brands such as Levi's, Burberry and American Express.
Facebook needs these top brands to spend more to narrow the yawning ad-revenue gap between Facebook and Google. According to eMarketer, Facebook's 2011 online ad revenue share is 6.4%, compared to Google's 40.8%, even though the social network commands the largest time spent online and shows more display ads than anyone else, according to ComScore. But the big opportunity, of course, is a crack at the offline spending, such as the $60 billion TV market. Facebook is expected to sell $3.8 billion in advertising this year.
"Instead of getting a small fraction of the budget, they're trying to position themselves for a larger piece of the overall pie -- not just in digital but in overall media spend," said Dave Williams, CEO of social-engagement advertising firm Blinq Media, which does its business on Facebook's platform.
While she thinks user experience is still paramount at Facebook, eMarketer principal analyst Debra Aho Williamson said Facebook has delivered on what marketers have been asking for in one especially key area: more social ads. An expensive premium ad offering announced last week, for example, is essentially a souped-up version of sponsored stories, adding the social context of a user's friends' likes and comments to a piece of a branded content that 's then served in the premium slot.
"The key for Facebook is going to be demonstrating that it has solid revenue streams that are capable of supporting this huge valuation that the company has," she said.
Facebook's valuation has recently been charted as high as $100 billion.