February 2012

For advertisers on Facebook, the free ride may be coming to an end.

When the social network filed for its initial public offering, the spotlight shifted from the site's exponential user growth to a metric that may have more bearing on its market value: ad sales. For years, many advertisers simply set up shop for free on Facebook, displaying their brands to users who "liked" them. But to see how Facebook now hopes to turn many of those advertisers into paying customers, look at how it convinced Omaha, Neb.-based retailer Gordmans Inc. to stop relying on free Facebook marketing and to start spending on a new kind of Facebook ad called "Sponsored Stories." According to a new study by Portland, Ore., marketing firm BlitzLocal LLC, between June 1 and Dec. 31 of last year, unpaid displays of marketing posts to users, which the industry calls "organic," decreased 33% among its more than 300 clients. "Content that used to live for a day may now live minutes in a user's News Feed," said Dennis Yu, chief executive of BlitzLocal, which analyzed some 5.7 million posts. Amid this shift, Facebook last year unveiled a new ad format, dubbed Sponsored Stories, which requires marketers to pay for exposure for their posts—including some they might once have gotten for free.

[Commentary] At long last Facebook has filed for its initial public offering, the most eagerly awaited event in Silicon Valley since Google went public in 2004. Having read the prospectus, with its details of how profitable and cash-rich the social networking enterprise is, may I suggest it calls the whole thing off. There is still time to cancel its IPO and the filing provides plenty of reasons why it ought to, and why Mark Zuckerberg, its founder and chief executive, would probably be happier if it did. He could carry on running Facebook as a private company and would not have to justify himself to outsiders. So what are its plans for the additional $5bn it may raise from an IPO? It intends to put the cash into US government bonds and savings accounts, and perhaps use some to pay the tax due on converting into shares the “restricted stock units” it has given to its 3,200 staff. Its sole tangible purpose for the IPO proceeds is to meet a tax obligation that will be triggered by going public. Welcome to the Catch-22 world of the venture capital liquidity event.

According to Google, the author of this article isn’t Karen Weise, 30-year-old woman and Bloomberg Businessweek reporter. Instead it sees a 55-to-64-year-old man interested in credit cards, finance, Los Angeles, politics, and “table games,” whatever those are. That’s the information provided by a Google tool that’s been available since 2009 but which few people know about. It lets users see what the search giant has inferred about them based on the websites they visit. (The URL is cumbersome, but try searching “ad preferences manager.” It should be the first link.) The results can be spot on—or wildly off the mark. They’re based on a “cookie,” a file placed by Google (and many other companies) on each computer browser to track how its users surf the Web. Google actually knows far more than browsing histories, though. It knows what people write in Gmail messages, what YouTube videos they prefer, and where they go with an Android phone.

Historically, Google’s privacy policies forced it to cordon off some of its most important data sources from each other, so the profile of a given YouTube user was totally separate from her Gmail profile. It was a schizophrenic view of the world. Starting in March, Google will be able to pull together everything it knows from its disparate products.

The National Association of Broadcasters and the National Cable & Telecommunications Association both supported full House Commerce Committee consideration of Federal Communications Commission reform bills that have already passed out of the Communications Subcommittee.

H.R. 3309, the Federal Communications Commission Process Reform Act of 2011, would among other things, require the commission to 1) survey the marketplace via a Notice of Inquiry before initiating any new rulemakings; 2) identify a market failure, consumer harm, or regulatory investment barrier before adopting any "economically significant" regulations; demonstrate that the benefits of any regulation outweigh the costs, 3) requiring any conditions imposed on transactions to be within the Commission's existing authority and not tailored to remedy any transaction-specific harms.

H.R.3310, the Federal Communications Commission Consolidated Reporting Act of 2011, would require the FCC to conduct a biennial survey of the state of competition in the marketplace that it publishes online and submits to Congress. The FCC already conducts a quadrennial (originally biennial) regulations review. But unlike that process, in this review, the FCC would be required to take into account competition from the Internet.