Facebook Warns Brands that Scale in Social Won't Come for Free

To Reach a Sizable Share of Your Fan Base, You'll Need Some Paid 'Stories'

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Facebook is asking marketers to double down on their investment in advertising and content in return for an assurance that they'll reach a sizable share of the fan base they've been growing for years. It always wants them to rethink their very organizations and what an ad is .

The message: Social at scale will not be free.

It was delivered at a grand event that ended with cocktails under the life-size replica of a blue whale in the Museum of Natural History and a performance by Alicia Keys. There, Facebook suggested that marketers reorganize themselves around social. It produced a handy playbook with a proposed organizational chart for marketers that advises creating a position to "oversee social across the organization" (and report directly to the chief marketing officer) as well as a "pages team" dedicated to Facebook. It also suggested a terminology in which Facebook ads will no longer be "ads" but "stories."

Audacious, yes, but Facebook, now on its way to a public offering, has built incredible scale as well as engagement. In the U.S., it ranks No. 1 in time spent and ad impressions and No. 2, to Google sites, in total internet visits. No doubt some marketers will restructure to take advantage of it, just as they retooled to take advantage of search.

"We're going to see the emergence of quite different organizational designs over the next few years," said Nigel Morris, CEO of Aegis Media Americas, which is a member of Facebook's client council of top brand and agency partners.

The big question remaining is whether they'll spend more on ads. That's an issue for Facebook, which is under pressure to prove before the IPO that it can scale its revenue in proportion to its audience. 

To encourage that , Facebook unveiled a tool, Reach Generator, that will let marketers buy all the reach they want. Priced according to the size of a brand's fan base, the tool is designed to take a piece of content and amplify its reach by resurfacing it as an ad.

The pitch is that just 16% of fans currently see organic content posted by brands: Most of it is weeded out by Facebook's EdgeRank algorithm, designed to enhance users' experience by putting only the most relevant content in their news feeds. Using the paid ad tool could increase a brand's exposure percentage to as high as 75%.

Facebook appears to be moving beyond the first phase of its business model, where it encouraged marketers to pay to accrue fans, said Rob Norman, CEO of Group M North America. Now that some major marketers have grown fan bases 20 million users strong, the logical next step is to get them to pay to activate those fans beyond the 16%. 

"Getting people to pay for the other 84% is good business," Mr. Norman said.

Brands that have spent millions accruing fans were surprised to find that such a low percentage of them were receiving their messages.

"Many [clients] have spent significant sums to generate these fan bases, and many of them thought of those people as though they're an owned asset, almost like an email list ... but now it looks like rented media," said Craig Atkinson, chief digital officer at PHD USA. "I think there's a moment of pause while they're digesting what's a pretty material change in the orientation of it."

Last week wasn't the first grand proclamation Facebook has made about advertising. In 2007, it summoned the ad community to an event where CEO Mark Zuckerberg, then 24, announced: "The next hundred years will be different for advertising, and it starts today."

But in the nearly five years since, a persistent undercurrent has been that Facebook's attitude toward advertising verges on intolerance, as the company has mostly relegated ads to the right rail and kept them small, innocuous and, as some researchers assert, ineffective—largely because the reach is limited to fans and their friends.

That appears to be changing with last week's news of premium ads, long-awaited mobile ads and ads on the log-off page. (Advertising on Facebook's massively trafficked log-on page remain off-limits to marketers, however.)

"These new ads are the first indication that being publicly traded will reset the balance between users and marketers in a marketer's favor," said Chris Wexler, director-strategy at Campbell Mithun. "Don't expect MySpace 2.0 anytime soon. But you will see marketing messages continue to invade what has been a largely ad-free place."

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