Another Social Site Tests Ad Waters

Like its social network brethren, Facebook is hoping to find the key to embedding advertising into its site. Next month, the Palo Alto, Calif.-based company will take a new tack: piping marketing offers to users in the form of text and a few graphics.

The ads will appear in members’ News Feed, a feature that shows them what their friends are doing on the site. Chief revenue officer Mike Murphy said the ad, which will appear like other updates but arrive marked as a sponsor message, would be Facebook’s equivalent to buying a homepage ad, typically a site’s most coveted (and expensive) placement.

Social media sites like Facebook, MySpace and YouTube are all looking for ways to connect brands to the site experience in ways deeper than typical banner placements, but without intruding on the experience. MySpace is relying on brand profiles, while YouTube has created click-to-play ads and opt-in brand channels.

Creating a working ad model is of paramount importance to Facebook, which has reportedly fielded a $1 billion acquisition offer from Yahoo. Last week, it made the jump to open registrations, allowing anyone to join, unlike its original incarnation as a college-only network. New arrivals will be grouped by location, creating what Murphy described as private communities.

Facebook doesn’t yet know which brands will be advertising in the news feed. Murphy said that marketers would need to provide tangible value for the ads to succeed. Advertisers should use them as an invitation for a relationship, he said, tying them to their Facebook group. “The goal is an ongoing dialog with the user,” he said.

Facebook got a lesson in its members’ willingness to start a dialog when it released News Feed last month. Many were concerned it impinged on their privacy by broadcasting personal information. The protest died down somewhat after the site added new privacy options days later and highlighted existing controls.