The Wall Street Journal Classroom Edition

Facebook's estimated market value of nearly $100 billion is founded on the belief that companies are prepared to spend big money to advertise their products to the site's 800 million users world-wide. Facebook's revenues, which come largely from ads, were $1.6 billion in the first half of 2011, up $800 million from a year earlier.

But most of its ads were for small advertisers, such as local businesses and small-scale websites, according to comScore Inc. For Facebook to expand its advertising on a grand scale, it will need to snag the sort of big brand names that now drive billions of dollars to TV, radio and print campaigns.

That will be an uphill battle, as a recent campaign for the Ford Focus illustrates.

DOUG THE ‘SPOKESPUPPET'

The centerpiece of Ford's online campaign for the 2012 Focus was a free Facebook page hosted by an orange puppet that in a few weeks won over a new, younger audience for the car. The spokespuppet, named "Doug," drew crowds to online conversations and videos that starred him clowning around the new Focus. Doug inspired more than 43,000 Facebook users to click "Like," the icon that broadcasts to friends a thumbs-up approval of a brand or product.

While Ford shelled out an estimated $95 million to advertise the new Focus across a broad range of media, it spent just pennies on the dollar for Facebook ads.

That mirrors the experience of other brands—including Progressive insurance, Intel and Pepto-Bismol—that chased customers to online social networks. After some experimenting, the companies found that they could reach a target audience at a steep discount by generating buzz with free Facebook pages.

Ford's spokespuppet campaign is an example of "Likeonomics," a term coined by adman Rohit Bhargava to describe the way brands use social media to create an affinity among customers, who then share their sentiments with friends.

Facebook ads break new ground, says Mr. Bhargava, because they use demographic information volunteered by users—geography, personal interests and professions—that allows for targeted messages.

While marketers can measure the cost of a Like—more than $1 per user and climbing—they haven't yet figured out the
long-term value of a "Liker." That is, they can't tell whether the Likes are a momentary reaction or really help build brand loyalty.

WHERE THE CONSUMERS ARE

For now, companies are shifting marketing efforts to Facebook because that is where consumers are. In September, U.S. Web users spent an average 6.8 hours on Facebook, far more than on any other site, comScore said. That amounted to 15% of their online time, according to comScore.

Facebook says 96 of the top 100 U.S. advertisers bought ads on its site in the past year. Of the world's 100 largest companies, 61% have a presence on Facebook, up from 54% a year earlier, according to Burson-Marsteller.

Ford is among the brands that are beginning to embrace Facebook as part of their marketing plans. But paid advertising on Facebook was just a small part of the car company's plan when its ad agency, Team Detroit, came up with the idea for Doug last January. The agency's pitch: Ford needed to grab the attention of Facebook users with something they'd pass on to friends.

In March, Ford launched Doug's Facebook page without any paid Facebook ads. Executives watched Doug attract followers, who started sharing Doug's wise-cracking videos. About three weeks later, Ford bought ads on Yahoo's email log-in page. It paid Microsoft and Automobile magazine to sponsor videos and articles about Doug.
The ads pointed to Doug's Facebook page.

Ford also started buying Facebook ads introducing Doug and urging users to "Like" him. When Doug hit 10,000 fans, Ford stopped buying; there was no reason to continue paying Facebook after Doug went viral, says Scott Kelly, Ford's head of digital marketing.

Many large advertisers say their Facebook spending is small compared with other sites and makes up a small fraction of their total ad budgets. Last year, Facebook was expected to capture just 6.4% of total online ad spending for 2011, according to estimates by research firm eMarketer, and ad revenues per user were less than one-fifth what Google gets.

SOME SUCCESSES

Facebook's pitch to companies is that advertising on the site builds brand awareness, along with a more personal relationship with customers. The company's strategy has been to lure marketers with free opportunities—fan pages and the "Like" button—and then sell ads to help drive viewers to the material they post. David Fischer, vice president of advertising and global operations for Facebook, says the most successful Facebook campaigns combine free content with paid ads.

Among Facebook's recent successes: Sony is shifting 30% of its traditional ad budget into social sites, including Facebook, for its PlayStation game console. Diageo, which makes alcoholic beverages and faces limits on advertising in traditional media, has committed to spending more than $10 million on Facebook ads.

In addition to using Facebook's free tools, Ford says it's gradually increasing its ad spending on the site and recently closed its largest ad deal with Facebook. But because of the social nature of the site, Mr. Kelly says, "it doesn't require Ford to spend large dollars on splashy ads to engage customers."

ADDITIONAL READING

"Facebook 'Likes' Small Business" looks at the social media company's push to gain more small-business users.

"Google +1 Looks to Crash Facebook Gathering" reports on why Google might have an advantage in social advertising.

"The Long Haul to Capitalizing on Web Trends" is a WSJ Digits blog entry about the time it takes for companies to benefit for web revolutions.

"The Genesis of Doug, the Ford ‘Spokespuppet'" is a WSJ Digits blog entry about Ford's three-year experiment with Facebook.

VIDEO

Watch clips from the Ford Focus "Doug the Spokespuppet" online video ad campaign.

Learn about Klout, which gives users of Facebook, Twitter and other social networks a score based on their online influence. This Wall Street Journal video shows how the score is calculated, what it means for getting freebies, and why the score is so valuable to advertisers.

OBJECTIVE
Evaluate the potential of social networks as advertising media

OVERVIEW
Companies find they can reach a target audience at a steep discount by generating buzz with free Facebook pages.

STANDARDS
NBEA: marketing, communication; NCEE: allocation, decision-making, competition; NCSS: production, distribution and consumption; NCTE: communication

REVIEW
Read the article "Facebook's Freeloaders" and answer these questions

1) How did Facebook help Ford reach a new audience for its 2012 Focus?

2) What is "Likeonomics"?

ACTIVITY IDEAS

• What factors contributed to the success of Ford's "Doug" ad campaign? How was the success of the campaign measured? Discuss as a class.

• Do you think advertising on Facebook is better suited for large companies like Ford, or for small businesses? Explain. What are the pros and cons of using Facebook as an advertising medium for any company? Discuss as a class.

• Besides Facebook, what other social media sites do you see advertising on? Visit two social media sites and make a list of the advertising you see. Do the ads change when you refresh a page? What types of goods and services are offered? Who is the target market? Discuss your findings as a class.

• Where is Doug? On Sept. 29, Ford's spokespuppet went missing. The company hasn't ruled out a return, but why do you think it decided to end the campaign so quickly? Pretend you are in charge of marketing for Ford. Create an advertising campaign for Doug's return. Present your campaign to the class and discuss.