A year after IPO, Facebook aims to be ad colossus

New tools aid mobile-ad quest

Facebook founder and CEO Mark Zuckerberg rang the opening bell of the Nasdaq stock market from Facebook’s headquarters in Menlo Park, Calif., a year ago.
Nasdaq via Associated Press/File 2012
Facebook founder and CEO Mark Zuckerberg rang the opening bell of the Nasdaq stock market from Facebook’s headquarters in Menlo Park, Calif., a year ago.

NEW YORK — It was supposed to be our IPO, the people’s public offering.

Facebook, the brainchild of a young CEO who sauntered into Wall Street meetings in a hoodie, was going to be bigger than Amazon, McDonald’s, and Coca-Cola. And it was all made possible by our friendships, photos, and family ties.

Then came the initial public offering of stock, and it flopped. Facebook finished its first day of trading just 23 cents higher than its $38 IPO price. It hasn’t been that high since.


Even amid the excitement surrounding Facebook’s May 18, 2012, market debut, there were looming doubts. Investors wondered if the social network could increase advertising revenue without alienating users, especially those using smartphones and tablet computers.

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The worries intensified days before the IPO when General Motors said it would stop paying for advertisements on the site. The exit cast a shroud over Facebook that remains. Its market value is $63 billion, two-thirds of what it was the morning it first began trading. The stock is down roughly 30 percent from its IPO price.

Still, the company has delivered strong financial results. Net income increased 7 percent to $219 million in the most recent quarter, compared with a year earlier, and revenue was up 38 percent to $1.46 billion.

The world’s biggest online social network has also kept growing, to 1.1 billion users. Some 665 million people check in every day to share photos, comment on news articles, and play games. Millions around the world who don’t own a computer use Facebook.

And much has changed at Facebook in a year. Executives and engineers have quietly addressed the doubts that dogged the company for so long. Facebook began showing mobile ads for the first time just after the IPO. It launched a search feature in January and unveiled a Facebook smartphone in April. The company also introduced ways for advertisers to gauge the effectiveness of their ads. Even GM has returned as a paying advertiser.


Now, Facebook is looking to its next challenge: convincing brand-name consumer companies that ads on a social network are as important and effective as television spots.

‘‘We aspire to have ads, to show ads that improve the content experience over time,’’ Facebook’s chief executive, Mark Zuckerberg, told analysts recently. ‘‘And if we continue making progress on this, then one day we can get there.’’

The company has rolled out tools to help advertisers target their messages more precisely than in print or on television. Companies can single out 18- to 24-year-old male Facebook users who are likely to buy a car in the next six months, for example.

Tools like these weren’t available a year ago. But last fall, Facebook hired companies that collect and analyze data related to people’s online and offline behavior. Advertisers can now assess whether a Crest ad you saw on Facebook led you to buy toothpaste. The services take what Facebook knows about you and what ads you saw and combines this with information retailers have about you and what you’ve purchased through loyalty cards and the like.

Advertisers are also making use of Facebook’s partnership with the audience measurement firm Nielsen Co. Nielsen introduced a tool that helps marketers discover ‘‘not only who saw their ad online and who saw their ad on TV, but also how these audiences match up,’’ said David Wong, vice president at Nielsen.


Sean Bruich, Facebook’s head of measurement platforms and standards, says the new tools are paying off.

‘‘What we can see conclusively a year after the IPO is that ads on Facebook really do help drive people into the store and help them make purchasing decisions, help influence their purchasing decisions,’’ he said.

A recent Nielsen analysis said consumers are 55 percent more likely to recall ‘‘social ads’’ than traditional online ads.

So powerful is Facebook’s new analytic arsenal that privacy advocates are growing concerned about merging consumers’ online and offline experiences.

People ‘‘are getting served ads based on things they didn’t put on Facebook and maybe wouldn’t be comfortable putting on Facebook,’’ said Rainey Reitman, at the Electronic Frontier Foundation, a nonprofit civil-liberties group. Facebook says mechanisms are in place to protect privacy.

‘‘We’ve never had anything like Facebook,’’ Reitman says. ‘‘We’ve never had an entity that was able to collect so much information on so much of the world’s population, ever.’’

Advertisers aren’t complaining. ‘‘Anywhere that more than a billion people spend time with their friends each month is extremely valuable to us,’’ said Brad Ruffkess, a strategist at Coca-Cola.

At Procter and Gamble, the world’s biggest advertiser — it’s the parent of Boston-based Gillette — ‘‘we saw almost from the start that social media is the world’s largest focus group,’’ said Marc Pritchard, global brand-building officer.

Still, some advertisers remain skeptical. Ryan Holiday, director of marketing at American Apparel, is critical of Facebook’s ‘‘sponsored stories.’’ These are messages from marketers interwoven into users’ news feeds. He says the clothing company spends less than 10 percent of its online advertising budget with Facebook.

One thing is increasingly clear: The future belongs to mobile advertising. Just a year ago, Facebook warned it was behind in capturing this market. Facebook retrained engineers and rebuilt its mobile applications, which users complained were clunky. Now, there’s an explosion in the number of ads shoehorned in between status updates and cat photos.

‘‘The transition to mobile happened even faster than we believed,’’ said Carolyn Everson, a Facebook vice president.

In the first three months of 2013, Facebook generated $375 million in revenue from mobile ads, about 30 percent of its total ad revenue — impressive given that Facebook had no mobile ads at all just a year ago.

Of course, television still accounts for the biggest slice of ad spending. ZenithOptimedia says television accounted for 40 percent of worldwide ad spending, compared with the Internet’s share of 18 percent. By 2015, the Internet share is expected to grow to more than 23 percent, largely at the expense of newspapers and magazines. TV is expected to hold steady.