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20 06/12

How Facebook is changing advertising

On Valentine’s Day, this year, American, Nick Bergus found a link, on Amazon.com, for a 55 gallon barrel of personal lubricant.

He thought this was funny and he posted a link on Facebook, writing; “For Valentine’s Day. And every day, for the rest of your life.”

Almost immediately, his friends started seeing his post in the ads on Facebook pages, with his name, accompanied by a smiling photo. Facebook had seen his post as an endorsement and turned it into an advert, paid for by Amazon.

As far as Facebook was concerned, this was a sponsored story, a potentially lucrative tool that turns a user’s liking for a product into an ad, which is then delivered to his friends.

Amazon, and many other companies, pay Facebook to create these automated ads if a user clicks to ‘like’ their brands, or references them in some way. If you are a Facebook user, you will have agreed to participate in this form of advertising, halfway through its 4000-word terms of service, when signing up.

Following its huge recent public offering, Facebook is under increased pressure to up its profits and is relying more on this approach to generate extra advertising revenue. But, this new advertising trick is not without its problems. Users don’t always realise their ‘likes’ and links can be used for marketing purposes and Facebook has already agreed, in principle, to settle (out of court), a class-action lawsuit over the practice, in California.

Mr Bergus realises that Facebook’s algorithms lack a sense of humour, saying: “I was mildly annoyed, but not to the point of deleting my account. I know the costs of using Facebook. It doesn’t cost me money, but it uses a lot of my personal information.”

Facebook earned $1 billion in the first quarter of this year, mostly from advertising, but does not say what percentage came from sponsored stories. These sponsored stories appear in Facebook’s main news feed and in its mobile apps, bearing a ‘sponsored’ label. The company states consumers are 50% more likely to recall an ad if it comes with a plug from a friend.

Users are able to change a privacy setting, so their ‘likes’ do not appear under ads in their most prominent advertising zone, but cannot turn off endorsements that might appear elsewhere.The Facebook help centre says: “Because sponsored stories are just stories from the news feed, you cannot opt out of them.” The only option is to not click the ‘like’ button next to something if you don’t want to be associated with it.

If you are famous, you can be paid huge amounts for your association with a brand or product, but on Facebook, just engaging with a brand page, apparently gives them the right to your personal endorsement, with no monetary remuneration, or even compliance involved.

As a marketer, these ads require no creativity; they just leverage a stated preference into an endorsement and spread your supposed support to your network’s friends. If you follow President Obama’s page, just out of political curiosity, for example, you may well appear in an ad on his campaign’s behalf. As flattering as that may seem, it is a total theft of your online presence.

Eric Goldman, a professor at the Santa Clara University School of Law, says sponsored stories create a zero-sum game; “I, as a user, probably don’t get any value from the public presentation of my implicit endorsement; if anything it might hurt my position with my friends, but Facebook and its advertisers benefit from it.”

Regarding that current law suit in California, Angel Fraley clicked a ‘like’ button for an online French course, by Rosetta Stone. She was considering a move to Paris and thought a ‘like’ on Facebook might get her a discount. It didn’t and she soon showed up in an ad for Rosetta Stone on the Facebook pages of her friends. Details of the settlement have not been disclosed.

She says: “When I signed up, that was not part of the deal.” Unfortunately, because Facebook is so desperate to generate advertising revenue and no-one bothers to read all their terms and conditions, it is, in fact, an intrinsic part of the deal; it is the nature of the beast that is Facebook.

Nigel Phillips

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