Despite tough advertising market, Facebook is expanding

SAN FRANCISCO - Facebook Inc. has plenty of money to overcome the economic slump and is adding new forms of interactive advertising that will boost sales 70 percent this year, Sheryl Sandberg, the chief operating officer, said.

"We could not be doing better financially," Sandberg said in an interview last week. "We absolutely do not need to take money. We might take money - but it doesn't mean we need to."

Facebook is expanding amid the worst market for Internet advertising since the dot-com bust, and at a time when companies are still trying to figure out how to advertise on social-networking sites. While Facebook was "nervous" following the collapse of Lehman Brothers Holdings Inc. last year, its confidence for ad sales "grows every week," Sandberg said.

"We're on a path, a clear path, to be cash-flow positive next year," said Sandberg, who joined Facebook from Google Inc. last year. She had previously served as chief of staff for the Treasury Department under President Bill Clinton.

The challenge for Facebook, the most popular social-networking site, is that people aren't used to seeing ads on its pages, said Allen Weiner, an analyst at Gartner Inc. in Scottsdale, Ariz.

"It's a very, very tough and discriminating audience," Weiner said. "I also don't think they've totally sold the vast array of potential advertisers and marketers on the value of Facebook."

Founded in 2004, Facebook has raised more than $400 million in equity funding, including a $240 million investment from Microsoft Corp. Peter Thiel's Founders Fund and venture capital firms Accel Partners, Greylock Partners, and Meritech Capital Partners are among Facebook's other investors.

Although Facebook doesn't need more money, the company uses lease-financing for equipment purchases, Sandberg said.

Sandberg, 39, said the company has improved its advertising offerings in the past year so they more closely resemble how the site works. In February, Honda Motor Co. allowed users to exchange heart-shaped virtual gifts - complete with a Honda logo - around Valentine's Day. Four days after the campaign started, 1.5 million people had either given or received virtual gifts that promoted the Honda Fit.

"It raised awareness about the Honda Fit by bringing new fans to the Honda Fit fan page" on Facebook, said Chris Martin, a spokesman for the Tokyo-based automaker.

Facebook is also using information on users' profile pages to target ads, Tim Kendall, the company's director of monetization, said at a conference in San Francisco last week. Facebook helped an Asian airline promote airfares by identifying people who expressed an interest in Japan in their profile pages, he said.

Sandberg said Facebook is experimenting with targeting ads based on information on users' virtual walls - without revealing any personal data.

Clients are spending more on Facebook than they did before the financial crisis, which contrasts with industrywide declines reported by Yahoo Inc. and Microsoft, said Jordan Bitterman, a media buyer at Digitas, an online ad agency in New York.

Some companies have held off buying ads on Facebook because they worry about their brands being displayed next to pictures of scantily clad women or other questionable content, said Gaston Legorburu, chief creative officer at Boston-based Sapient Corp., which provides online advertising services to clients such as Coca-Cola Co.

"I still see a lot of hesitation from big brands to take that risk," Legorburu said. "They are still very shy around buying media next to user-generated content."

Sandberg said the increase in visitors to Facebook, as well as the site's growing popularity with older visitors, give advertisers more potential customers.

Facebook reached 200 million users this month, double the number from August last year. Much of the growth is coming from people ages 35 to 49. They accounted for about 34 percent of Facebook's US users in March, up from 27 percent a year earlier, according to researcher Nielsen Online. The percentage of users ages 18 to 24 was 7.6 percent, down from 17 percent a year earlier.

Facebook had 69.2 million US users in March, compared with 55.9 million for MySpace, its closest competitor.

One indication that 2009 is an important year: Mark Zuckerberg, the company's 24-year-old founder, has committed to wearing a tie every day to the office.

"This was a year where we were really, I think, going to have to execute," Sandberg said.

[the article was originally published at http://www.boston.com/business/articles/2009/04/29/despite_tough_advertising_market_facebook_is_expanding]