Facebook’s best friend

Sheryl Sandberg has bold plans to transform the social networking site into an advertising juggernaut

Facebook's best friend

Sheryl Sandberg has an impressive knowledge of Canadiana for someone who had never set foot in the country until last week. The chief operating officer of Facebook may have been gripping a grande-sized beverage from Starbucks, but that didn’t stop her from casually dropping in references to Tim Hortons coffee and donuts during an interview with Maclean’s last week, as though it was the local coffee shop in Palo Alto, Calif., where Facebook is headquartered.

But while Sandberg, who grew up in Miami, may have never tasted a Timbit, she does know off the top of her head that 1.2 million Facebook users have said they “like” Tim Hortons’ Facebook page. She has a similar barrage of statistics at the ready for other Canadian brands, including Molson, Indigo and, for some reason, Veterans Affairs Canada. Because it’s close to Remembrance Day? “I follow the business really carefully,” she says with a smirk.

No kidding. While Mark Zuckerberg, Facebook’s 26-year-old CEO and co-founder, has been in the spotlight lately thanks to the box office success of The Social Network, an unflattering film about Facebook’s early days, it’s the 41-year-old Sandberg who is now leading the charge to transform the Internet phenomenon, with more than 500 million global users, into a money-making colossus.

She hasn’t succeeded yet. Despite being Silicon Valley’s hottest property—earlier this year Facebook surpassed Google as the most visited website in the U.S.—the company still describes itself as a break-even proposition. The challenge has been figuring out a way to sell advertising on the site without killing its cool factor. The stakes are huge. Sandberg estimates the global ad market is worth about US$650 billion, most of which goes to TV. When asked how much she thinks Facebook can realistically wrest away, Sandberg levels her gaze. “A lot,” she says.

For those who are still unfamiliar­—and there’s not many of you left—Facebook was launched from Zuckerberg’s Harvard dorm six years ago. It has since ballooned into a sort of personalized broadcasting system allowing users to keep their network of friends informed of their activities­—sometimes in excruciating detail.

Sandberg’s first encounter with Facebook came about four years ago and it made a big  impression. She says she was struck by the amount of personal information that people were posting about themselves. Names. Birthdays. Email addresses. “I joke about being the only person at Facebook old enough to remember before the Web,” says the 41-year-old, adding that people now forget it was once considered taboo—even dangerous—to actually use your real name online. “Now, Facebook is all about not only using your real name, but sharing the real things in your life with the real people around you,” Sandberg says.

She met Zuckerberg at a Christmas party in 2007. They got to talking about how to scale up a company and developed a rapport. Sandberg, who was then the vice-president of global online sales and operations at Google, ultimately joined the team in early 2008. The move raised eyebrows. At the time she was hired, Zuckerberg was just 23 and was brandishing business cards that read “I’m CEO?.?.?.?bitch!” By contrast, Sandberg had two degrees from Harvard and had worked as an economist at the World Bank and as chief of staff for the U.S. treasury secretary during the Clinton administration.

Nevertheless, the odd couple routine worked. Since Sandberg joined, Facebook has gone from being viewed as an Internet fad to an online force that threatens to displace Google as the Web’s chief gatekeeper. Just as Google uses its computer algorithms to help people find what they’re searching for online, Zuckerberg and his team believe that users will increasingly rely on their “friends” to help them determine what’s worth seeking out in the first place—and that, according to Sandberg, includes companies and their products. “It’s definitely a dynamic that’s driving the evolution of the Web,” says Ray Valdes, an Internet analyst for research firm Gartner. “The Web is becoming social and Facebook is a clear leader in the space.”

Of course, being an Internet leader and making piles of money are two different things.

Facebook, which remains privately held and isn’t required to disclose its finances, is expected to generate more than US$1 billion in sales this year, mostly by selling small advertisements on users’ home pages and profiles. By comparison, Google has about US$24 billion in annual sales, suggesting that Sandberg still has a long way to go before her old bosses need to be worried.
Or maybe not. Grabbing a marker, she spins around in her chair and begins scrawling on a whiteboard. She explains that Google specializes in “demand fulfillment” advertising, which represents only about 10 per cent of ad sales online and off. In other words, Google waits for users to tell it what they’re looking for and then matches their queries with relevant ads. But what about all the rest of the money that is spent on convincing people to buy things they don’t know they want? Brand advertising is where companies really open their wallets and very little of it currently happens on the Web. Sandberg thinks Facebook can change that by giving advertisers a rare opportunity to have users—not marketers—do the heavy lifting, noting that the most effective type of advertising is not a glitzy TV spot, but personal referral from a trusted friend. She says Facebook offers the possibility to achieve word-of-mouth marketing “at scale.”

The key, says Sandberg, is making commercial content and user content indistinguishable. If a user decides to “like” Gatorade, the vote of confidence is broadcast to their entire network of friends. That information, in turn, helps Gatorade better target its message by seeing what ads work and what users respond to. It all serves to increase users’ engagement with the site’s advertisers. The other main selling point for advertisers is access to Facebook’s vast storehouse of data about its members. Facebook offers companies an almost infinite number of ways to narrow their audience by specifying things like age, location, relationship status and interests. While Facebook’s control of all that personal information has raised alarms among privacy advocates, Sandberg stresses that users own their own information and can control who they share it with on the site. “We only give out aggregate information,” she says, adding that some of the world’s biggest advertisers now view Facebook as a critical part of their arsenal. She says that Pepsi, for instance, decided not to buy a Super Bowl television ad this year and bought a spot on Facebook users’ home pages instead.

But many companies are still taking a wait-and-see approach. While TV and print give advertisers the ability to control their message, the Web is a two-way street. Firms’ carefully cultivated brands can just as easily end up being stomped on by people with an axe to grind. It’s also early days and no one knows for sure what kind of return on investment Facebook ads will generate. Sunni Boot, the CEO of ZenithOptimedia Canada, an ad buying firm, says that social media is definitely on companies’ radar, but that many in Canada have tended to be more cautious than their American counterparts—in part because of their smaller ad budgets.

Not everyone is sold on the concept of social ads. Shelly Palmer, a tech blogger and host of NBC Universal’s Live Digital, says there are key differences between Google and Facebook that make one more amenable to advertisers than the other. “When you visit Google, you intend to go somewhere else,” he says. Like an advertiser’s website, where you can actually buy the product in question. “When you visit Facebook, you intend to stay there. Advertising is probably not a huge part of Facebook’s future—no matter what they think.” He also says it’s too soon to tell whether Facebook is a legitimate online utility or more like a fashionable night club, noting that previous social networking success stories like MySpace went from hot to not within a couple of years. Facebook is an unprecedented phenomenon that is changing the Web, he argues, but no one really understands it, let alone how to harness its power for financial gain, “although that does not seem to stop people from trying to supply a narrative.”

Sandberg, not surprisingly, disagrees. The numbers don’t lie, she says. Facebook continues to grow at breakneck speed, and people are spending more time on Facebook and less time with other media. It’s only natural that advertisers will want to follow. “Every day 15 million people friend each other and every day 50 million people ‘like’ a page,” Sandberg says. “Some are brands, some are products, some are politicians, but a good chunk of it is commercial.”