Facebook to revamp its Pages service for advertisers

Facebook will announce a major upgrade to its Pages advertising service on Wednesday.

Facebook CEO Mark Zuckerberg will announce on Wednesday a major upgrade to the company's Pages service, which lets advertisers create profiles on the social-networking site to promote their products and services.

Zuckerberg will be joined by Director of Product Chris Cox and Product Manager Peter Deng for a webcast scheduled to start at 1 p.m. U.S. Eastern Time, according to an invitation sent to reporters by Facebook's public relations agency.

The Facebook officials will also discuss other "product developments," the note says, which leaves the door open for news related to the company's much-maligned Beacon advertising service.

Pages and Beacon were launched simultaneously in November 2007 as part of a broader Facebook strategy for "social ads," which the company at the time hailed as a historic development not only for itself but for the media business in general.

At the time, Zuckerberg predicted that Facebook's "social ads" would prove to be the much-awaited marketing tools that would allow the company to capitalize on its large, fast-growing and heavily engaged audience, which had proven hard to entice with traditional online ads, like banners and text ads.

Unfortunately for Facebook, the "social ads" failed to come close to matching those lofty expectations. Beacon backfired in a major way, igniting a privacy backlash after it was deemed highly intrusive and stealthy in its tracking and broadcasting of member actions in external Web sites.

Pages didn't hurt user sensibilities like Beacon did, but it hasn't had the predicted revolutionary effect, although Facebook has said that on a daily basis "millions" of its members become fans of these profiles, which are also used by celebrities and artists.

As evidenced by the Beacon controversy, the "social ads" concept, which aims to use people's social-networking connections to promote products and services, can create privacy concerns. Just because someone is on your social-networking list of friends doesn't mean you necessarily want them to know which movies you rented or which shoes you just bought online.

In fact, after the months-long Beacon controversy quieted down, Facebook executives, starting with Zuckerberg, changed their tune in public appearances, saying that the company was instead focused on improving its user experience and growing its user base, and not so much on revenue.

Asked in November of last year about speculation that Facebook was facing a cash crunch and struggling to fund its growth, Zuckerberg said the company had no such problem. Speaking at the Web 2.0 Summit in San Francisco, Zuckerberg said Facebook wasn't starved for money, but rather that its ad business generates a healthy cash stream that allows it to grow its operations as needed.

Zuckerberg also said at the time that he doesn't obsess about the US$15 billion valuation that a Microsoft investment gave it in 2007. "We don't feel any pressure to live up to the valuation," he said.

However, it's clear that Facebook continues to seek more effective ways to generate ad revenue that is consistent with its massive user base, which now stands at about 175 million members worldwide. Its main rival, MySpace, is on a similar quest.

Over a year ago, in an interview with CBS' 60 Minutes, Zuckerberg said Facebook was still committed to Beacon, which it hopes will eventually become a "really good thing." No major update about Beacon has been unveiled to date, however.

Facebook recently starred in another privacy controversy when it changed its terms of service for members in a way that seemed to suggest it was laying claim of ownership to all content stored on the site, even after someone deactivates an account. As a result, Facebook reverted to its old terms of service, apologized and vowed to be more open in its policy discussions, in which it wants its users to participate.

What's clear is that, currently, companies like Facebook, MySpace, Google and Yahoo that make most of their revenue from online advertising are facing a shrinking market, as companies cut back on their ad spending due to the economic crisis.

Last week, market researcher IDC said that online ad spending in the U.S. will shrink year-on-year in the first quarter for the first time since the dot-com bubble burst in 2001. The contraction could be as much as 5 percent, compared to 2008's first quarter. U.S. online ad spending may shrink in the second quarter of 2009 as well, according to IDC.

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