Advertisers lose patience with Facebook Mark Zuckerberg has long said that making money on Facebook is secondary to the experience of its users. Advertising only serves to enable the social network's broader mission of making the world more "open and connected," he says. But tension is rising among advertisers over their secondary status, as they become frustrated with the lack of premium advertising slots on the site or clear metrics that demonstrate a monetary value of their spending. "The shiny new object is now coming under closer scrutiny," says Norm Johnston, global digital leader at Mindshare Worldwide, a WPP media agency. After a frenzied year or so of getting [new] fans, most brands are now taking a much closer look at what they are really trying to achieve and what's really working. Facebook is trying to engineer an advertising "revolution," says Victoria Ransom, chief executive of Wildfire, which helps companies market and advertise on Facebook. It wants to change the way advertisers talk to their consumers, and, in the process, create a whole new advertising model that is centred on social connections, and word-of-mouth, personal recommendations. But the new advertising products it is inventing take time to develop, and time to test and refine. While Facebook has convinced companies that they need to have a presence on Facebook, it is having trouble convincing them to spend a consistent portion of their advertising budgets there. Slowing ad sales in the first three months of the year are an indication that advertisers are losing faith, or patience, or both, analysts say, and that has some wondering if Facebook will live up to a sky-high valuation of $96bn at its initial public offering. To pay or not to pay? With 900m active monthly users, Facebook has convinced companies that the social network is a place they need to be. The size of Facebook's audience, according to Sheryl Sanberg, chief operating officer, is equivalent to "the season-finale of American Idol, the most popular show on television, times two." But now that companies are there, Facebook must get them to pay to stay. Setting up a presence on Facebook is free. Companies can build a company profile page and begin communicating directly with other Facebook users at no charge. Many buy advertising in order to drive traffic to their page, but once people "Like" their pages, they can send messages to those fans without paying more to Facebook. "That's their biggest issue," said David Sable, chief executive of Y&R Advertising. I can put stuff in at no cost and get to people I really want, so why wouldn't I do that? They have to figure out how to monetise better. While Facebook did generate $3.2bn in revenues last year, about 85 per cent of that from advertising, sales growth slowed in the first quarter of 2012. In that same time period, Facebook rolled out a number of new products to try to squeeze more money out of advertisers. Facebook introduced a new premium profile page where companies can pay for advanced features, as well as something called "reach generator," which guarantees that a message the company writes to its fans is actually seen. Only 16 per cent of a company's fans will see any given message it writes, either because the fans are not online at the time it is sent, or because Facebook's algorithms rank it below other posts from the user's friends. Facebook's "reach generator" product allows companies to pay so their messages are guaranteed to be seen by 70 per cent of their fans. But it has been difficult to get advertisers to pay for what was once free, signaling another challenge Facebook will face as it seeks to boost its revenues. Two agency executives told the FT that the new product has not sold well because it is too expensive. "They priced it very aggressively," said one agency executive. "To support a $100bn valuation requires Facebook to create new revenue at a precipitous rate, and at great efficiency," says Jed Williams, an analyst with BIA/Kelsey. It's tough to live up to that growth. Some advertisers have figured out ways to measure success. Facebook featured an executive from Ben & Jerry's ice cream in its roadshow video, who said for every $1 the company invested in Facebook, it generated $3 in sales. But such reports are done internally, and can be very difficult for different companies with different business models to emulate. "Measurement in social media is still in its very, very early infancy," says Olivier Fleurot, chief executive of MSL Group, a communications network owned by Publicis Groupe. Advertisers are clearly intrigued by this space where 900m people interact. They are not sure how to be part of the conversation. "Sometimes it is a bit unsettling the pace at which they are changing things," said Maxime Kouchnir, vice-president of marketing at Pernod Ricard USA, who handles the Absolut vodka brand. But analysts say it is "unreasonable" to expect clear metrics, or overwhelming success at this early stage. Rebecca Lieb, an analyst with the Altimeter Group, likens the development of Facebook's platform to broadcast television. People didn't invent the 30-minute sitcom and the 60-second spot right away. It took time to evolve," she says. Facebook is in that position now, introducing brand new advertising and marketing features. Are they guaranteed to work? But give it a chance. Facebook has been making a big push in the past year to promote its advertising products, to "educate" advertisers how to use the site, and to try to convince them to measure success in ways they are not accustomed to. Rather than sales, it wants companies to focus on metrics that show how often a marketing message is "shared" or how many people are discussing the message or the brand on the network. The sales pitch has worked well, attracting hundreds of top brands to the site. Some 85 per cent of Facebook's $3.2bn in revenues last year came from advertising. But some of these efforts have alienated seasoned advertising executives. One senior executive at a large agency group, who did not wish to be identified, says that Facebook's attitude reminds him of Yahoo in the late 1990s when company sales representatives "wouldn't get out of bed for less than $1m." "Facebook has a lot of those Yahoo-like tendencies where they are just young, creating all these new formats and dictating terms," he says. They have a great business, but it's the hubris that drives me crazy. It's a bunch of 23-year-old kids telling you about how you're a dinosaur. Some advertisers want more traditional online ad formats and placement, such as flashy banner ads across the top of the screen, or at the top of the Facebook news feed, where users spend most of their time reading updates from their friends. They are willing to pay a premium for this coveted positioning, says Jon Elvekrog, chief executive of 140 Proof, a social advertising company. "Facebook is doing a lot of things right, but to grow that revenue line, it has to push toward higher-value ad placement and technology," he says. But Facebook has long made clear it is unwilling to allow banner ads, for fear of compromising the user experience. All recent moves, even the video Facebook produced for its investor roadshow, indicate that it will continue to prioritise user growth and engagement over ad revenues. But as the company embarks on the roadshow for its IPO, the pressure is on for Facebook to do more for advertisers. There is a view among some analysts that Facebook cannot rely on its current advertising business alone to justify a $96bn valuation. It has many opportunities to grow, from building advertising for its mobile platform, or developing finer targeting for advertisers based on Facebook's users" interests and preferences, or even boosting its payments business, says Mr Williams. But relying on its social advertising model alone will not be enough. "They can usher in a revolution in social advertising on their own network, but we are still not convinced that that will be enough to live up to the stature that's being suggested for this company," Mr Williams says. We think they need to go in more dramatic and diverse directions.