In Depth: Discussing Facebook’s Advertising Future with VP of Global Sales Mike Murphy

Facebook’s advertising efforts have come a long way in the last four years. While many companies have had to abandon advertising-focused revenue models, Facebook has grown total revenues to around $550 million this year, with about 90% of its revenues in our estimation coming from advertising. That’s up an impressive 70% year over year overall, as CEO Mark Zuckerberg said earlier this year.

Today, over 80% of America’s top 100 brand advertisers by total spend are active on Facebook, and Facebook says the number of total advertisers using its performance system has tripled so far in 2009. (It won’t say how many there are, but Facebook told us there were “tens of thousands” of advertisers back in January.)

We sat down with Mike Murphy, Facebook’s VP of Global Sales, to talk more in depth about the state and future of advertising on Facebook – not only for brand advertisers, but for performance marketers, developers, and affiliates as well. Murphy joined Facebook in early 2006, and today runs the global direct sales organization, including all of Facebook’s offices outside the US.

Justin Smith: Facebook’s advertising products for brand advertisers have evolved significantly over the past couple of years. How would you describe what’s changed?

Mike Murphy: I joined the company almost four years ago, and what we had then were IAB banners that were like most of what was on the rest of web. We realized quickly that the better we did to display advertising as part of our product, the better we delivered value to our users and advertisers. So we’ve been really focused on developing ad units that include social context so that they feel more like the rest of the content on Facebook. You can see that both on our engagement ads and performance ads today.

On the Pages side, what has become Pages today was actually originally sponsored groups. What we learned over time was that the more a Page became like a profile, having brands think more about publishing content than managing a group, the better it was for the brand. We’re constantly iterating on the Pages product, so that the way Pages work as part of the Facebook ecosystem is more streamlined and less confusing.

Earlier this year, Facebook redesigned Pages, giving them the ability to publish to the stream. How are brands reacting?

Different brands are using Pages differently. Some of the more innovative brands are publishing regularly and finding their way on what the best sequences of messages should be. What they’re finding is that publishing interesting objects or content and only making some percentage of them commercial in nature is necessary to make it feel like a relationship. That needs to be budgeted.

We’re helping big brands and agencies find the right balance between commercial and non-commercial messages. It really varies by category, and they’re learning as they go. We have 1.4 million Pages right now (but we don’t talk about what percentage of those are commercial).

Ultimately for a brand, a Page on Facebook is a presence that’s part of the experience. The promise of the web early was to develop a two way dialogue between a brand and a consumer. In the early days of the web that took the form of a microsite. Pages allow brands to have presence inside Facebook, which allows the actions fans to have organic viral value to their friends.

Why haven’t some brands created a Facebook presence yet, and what are you telling them?

There’s such a broad spectrum of brands, from the forward learning to the conservative. Many in the most conservative group still feel like they have a choice of whether they want to take participate in social media in general. What helps that group is that when they understand that their brand is here whether they participate or not, and they have an opportunity to shape that messaging, they get interested.

For example, I was meeting with a financial services firm recently who said they didn’t want their premium customers to think they were “playing with the kids” on Facebook. I told them you may not be taking into consideration that there are already 300 pages and groups on Facebook that are already talking about your brand. Eventually, they decided they wanted to participate. On the other end of the spectrum, there’s Vitaminwater using Facebook to choose a new flavor.

Brands are trying to figure out where Pages fit into ecosystem – they have websites, microsites, other social pages out there. We’re working with brands to put a strategy in place where they’re comfortable publishing content to people who have raised their hand as a passionate supporter of their brand. But there are still some companies that have to get legal approval for employees to publish anything about their product, and there are also some areas with regulatory issues that they need to manage, like pharmaceuticals.

We struggle the most with big brands who know that they want to get their message in front of Facebook users, but ask how many 300×250 ad units can I buy. That’s zero – we don’t have those. It’s challenging for us to respond to an RFP for a brand that’s thinking about buying Facebook like buying anything else on the web, often when they attach it to the end of a buy.

What’s resonating the best with those that are having success?

What we’re seeing is that it isn’t always the most natural brand that leads a category. Typically the expectation is that the biggest brand will be the leader on the social side. What we’re finding is the scrappier brands are leading, and the big brands are learning from them.

The big brands start out bucketing all the social companies into one bucket. We help them understand that there is a difference, and that Facebook’s authenticity of identity brings value in terms of the social norms and the way people act in front of people they know versus the way they act in front of people they’ve never met before.

Can you talk about any of the key metrics you’re using to measure success, like RFPs per month or average campaign budgets?

We can’t give any specifics here – but we do focus very heavily on churn. Those numbers have been very strong. The reduction of churn within our top advertisers and across the entire system is something that we’re very excited about. When advertisers find the right mix, they start looking at a relationship with us as up front as opposed to buying quarterly.

On the performance side, we’ve tripled the number of advertisers in the system this year, which has created much more liquidity in the environment. Targeting is becoming much more important.

How is Facebook packaging performance advertising for brands?

Brands have many objectives and measure different things – they follow both brand metrics and performance metrics closely. We try to package these into one opportunity to deliver value across all the objectives they have.

Sometimes they just want to measure it as a brand campaign, so we put a Nielsen measurement package on top of that, and that’s very different than when we’re trying to hit fan counts or trying to get a certain number of people to RSVP to an event.  The way we package up what we offer depends on the objectives of the campaign.

How do you compare using Facebook’s advertising APIs/tools to search marketing for agencies?

It’s not as much about how we’re competing in that space as it is just important for us to provide tools to agencies to bulk upload, measure, and manage ads in a scalable way. If advertisers are required to run one ad per campaign per brand, and not be able to switch creative or optimize on their own dashboard, it doesn’t create a lot of efficiency or scale.

I would expect that in many cases agencies will at first take their search terms and bulk upload them into Facebook, and it will take some time for them to realize that that may not be the best way to treat this system. Giving marketers the ability to upload a number of keywords as opposed to search terms creates scale, but I expect them to learn that taking search terms and uploading them as Facebook keywords will not get the same results as you do in search. You aren’t going to get that many people saying “tents” are an interest on Facebook, but you should consider the terms that people may use on their profile to express that interest.

We’ve heard from top developers lately that they’re spending a lot of money on Facebook Ads. How much are application developers spending?

Developers are absolutely using our advertising platform in a big way. I can’t talk about specific numbers, but what we’re seeing from the developer community is that they’re experiencing success in using our performance ads. They are helping us innovate around the ad system.

Facebook recently made changes in the rules around the types of creatives that platform ad networks are allowed to show. How do you view the role of platform ad networks going forward?

We think that developers and ad networks are a really important part of the ecosystem. The more value developers can create on our system, the better the system can become. We believe it’s important for developers to monetize the assets that they’re creating, and in many cases, an ad network is a great way to do that. I would expect that the future is what it is now – it’s graphical banner ads on the canvas page. I think the number of developers who need an ad network will continue to grow, but it’s important that we always put users first.

Regarding the ad units, the approval process for advertising is the same across our entire ad management system. Some of the confusion has come from data, and how much data is available to platform ad networks. So it’s important that as we always keep users first, we care about their privacy, we care about their data, and that will come first for us. If we can find ways that developers and ad networks can monetize that in a more meaningful way then we’ll do that, but never at the expense of the people who use Facebook.

Affiliates have historically been an active group of Facebook advertisers. What role do you envision affiliate advertisers playing in the ecosystem 1-2 years out?

Affiliates do use the platform, but they are becoming a smaller part of the ecosystem. When you launch a platform like ours, typically the first movers are the affiliates arbitraging to extract value from a system. Once you get more liquidity, the arbitrage opportunities go down. And the more robust our system gets, the more we expect advertisers to want to work with us directly instead of going through an affiliate.

Finally, let’s talk about the way that Facebook has been growing out its sales organization. What’s the size and shape of the sales staff today?

We don’t talk about the number of people that we have. We just opened a new office in Italy last week. And before that, Stockholm, Sweden. The way we look at it is that the platform is going to take care of many of the markets for the foreseeable future, so we aren’t forced to go out there and create a market. What we normally do is look at user growth and look at how spending happens, and the countries that have critical mass of users where online ad spending is high and where a significant portion is digital are where we typically look to open offices.

One of the things that we’ve learned as we’re opening offices is the mix of sales and support in these different offices. Some of the support needs are higher in new markets. A huge percentage of Facebook employees who aren’t in Palo Alto are in sales or sales support. Dublin is different, because it’s our international headquarters.

Is there any regional product differentiation for international advertisers?

No, but there are some opportunities to help in language. The ability to bulk upload in different languages will be a big opportunity. Our pan-European team in London right now is doing that, and we’re covering Asia from the US. We’re going to be doing some interesting things in Latin America too.

How has the Microsoft advertising partnership shaped your efforts?

One of the great things about the Microsoft partnership is they bring us a global footprint, giving us a channel in a lot of places that have been really important to us. They’re selling banner advertising in a number of markets.

You might expect that there would be a channel conflict, but there really isn’t. They’re packaging up the audience across their entire network, which includes Facebook.

Thanks Mike. What thoughts would you like to share as you look ahead to next year?

The marketers that are most engaged with Facebook are those that looking at Facebook as an opportunity to do both top down and bottom up marketing. The brands who are looking at planning a big top down push on Facebook next year are really resonating with the opportunity to create more groundswell in a bottom up way as well.

In terms of product, we mainly do a lot of iteration, but measurement is going to be an important part of what we’re doing next year. Most digital just delivers impression and click data. The Nielsen announcement we made is the first step toward providing significant info beyond impression and click data.

A year ago marketers were looking at Facebook as a place to experiment. Now they’re looking at it as a place to make their home. There once was a time when we were trying to get our first brand on Facebook. Now 83 of top 100 ad spenders are doing something and have a Facebook strategy. The amount of momentum there is significant.