Inside Facebook's Push to Woo Big Advertisers (Wall Street Journal, By Shayndi Raice)

After joining Facebook as FB -5.40% vice president of marketing last year, Carolyn Everson made it her mission to win over skeptical ad executives who complained that spending on the giant social network wasn't paying off.


At the time, many companies were using the site to promote brands on their own Facebook pages—but most were paying little to nothing to do so. While Facebook was starting to push more paid notices, it was unclear whether such ads actually led to purchases.

Facebook executive Carolyn Everson's mission is to help the social-media company, win over skeptical ad executives. Shayndi Raice has inside details on digits.

Carolyn Everson is Facebook's liaison with Madison Avenue. She is working with big brands to help them gauge how ads on the site can pay off.

So last October, Ms. Everson created a "Client Council," calling together senior advertising executives from 13 big brands and ad agencies. The goal: to learn from each other how Facebook could do better.

"I love being challenged," said Ms. Everson. "When people doubt us that's when we're at our best."

The first meeting took place in Facebook's loft-like Madison Avenue offices. Attendees included marketing heavyweights like Keith Weed from Unilever, ULVR.LN +0.40% Stephen Quinn from Wal-Mart WMT +0.48% and Wendy Clark from Coca-Cola KO +0.70%.

A nervous Ms. Everson arrived wearing a blue dress in honor of Facebook's signature color. Mark Zuckerberg welcomed the group via video conference. As the ad types peppered the young chief executive officer with questions, a theme emerged. If they committed to spending big bucks with Facebook, how could they be assured a return on their investment?

Mr. Zuckerberg's response, according to one of the attendees: "That's a great question and we should probably have an answer to that, shouldn't we?"

The remark underscores how Facebook has been coming up short on one of its most crucial goals: proving that ads on the site can help marketers move products off the shelf.

There is a lot riding on the effort. Facebook derived 85% of its total $3.7 billion in revenue in 2011 from global online ad sales. Last month, the company reported its second-quarter ad revenue rose just 14% from the previous quarter and 28% from a year ago. Those growth rates have slowed markedly over the last two years; quarterly ad revenues in 2011 grew by as much as 87% from the year-ago period.

Facebook's chief financial officer, David Ebersman, on a call with analysts attributed the 28% growth partly to a 9% increase in ad rates. He explained that ad impressions—or the number of people who see an ad—are climbing more slowly than the number of new users as more people access Facebook via mobile devices, where the company still has only limited forms of advertising.

The eight-year-old social network has also seen its stock tumble by 46% since it went public in May at a more than $100 billion valuation. Much of the drop has been fueled by concerns over the efficacy of Facebook's ads and the company's ability to continue to grow its ad business—especially as more users rely on mobile devices, which have small screens and little real estate for advertisements.

Some advertisers have yanked their Facebook ads because they have had trouble measuring whether the ads led to sales. In May, General Motors Co. GM +1.14% pulled $10 million of ads from the site, citing such concerns. High-profile defections are particularly troubling, since one big advertiser's actions can have a broad ripple effect on dozens of smaller advertisers.

"At the end of the day, you will get the early adopters of the large companies who can see [Facebook] as a big trend but you won't get sustained businesses without people understanding how ROI [return on investment] is concerned," said Unilever's Mr. Weed. "As a businessman and marketer, ultimately, you care about ROI."

Executives acknowledge that the push is on. On the company's last earnings call, in late July, Chief Operating Officer Sheryl Sandberg said Facebook is making "important progress" in proving return on investment to marketers. Though nearly all top advertisers spent money on Facebook ads in the last quarter, she conceded that the total was only a small percentage of the advertisers' digital ad budgets. She characterized the shortfall as an "imbalance" and a "substantial opportunity."

The task of changing that equation falls to Ms. Everson, who is Facebook's main liaison to Madison Avenue. Ms. Everson, 40, previously worked at Walt Disney Co. DIS +0.10%and at Microsoft Corp., MSFT +1.65% where she was vice president of global ad sales and strategy. Recruited from Microsoft in April of 2011, Ms. Everson, who is based in New York, travels once a month to Silicon Valley.

The crux of advertisers' doubts centers on whether Facebook ads actually sell goods and if they can be measured in a way that can be compared to other forms of advertising. Google Inc. and Yahoo Inc., YHOO -0.14% among others, went through similar tribulations a decade ago when they helped pioneer online search ads, which come up when users type in certain keywords.

But while the results of Google and Yahoo ads can be directly tracked by clicks, Facebook ads are harder to measure. Some smaller advertisers, like Zynga Inc.ZNGA -3.11% or 1800Flowers.com Inc., can track how users respond to ads because a purchase will take place as a result of clicking on the ad. But for many brands, ads on Facebook don't consist of an offer to directly buy something. They are more akin to TV ads, which marketers study to see how brand exposure might lead to offline sales.

Since the October meeting in New York, Ms. Everson has set in motion plans to convince the world's biggest brands that Facebook ads can indeed work—and to quantify how so.

Ms. Everson is sending measurement wonks across the country, like missionaries to preach the Facebook gospel. She is partnering with third-party firms to track how Facebook ads lead directly to purchases. And she is offering new types of information about Facebook ads to data-hungry marketers who are struggling to figure out how to parse the social media field.

Most of world's biggest brands have an entire department dedicated to measuring how ads work on various formats, like TV, radio, print and online. Facebook is sending its lieutenants to work hand-in-hand with these internal teams to learn the methods they use and then customize a way to measure Facebook ads using that brand's own methodology.

One disadvantage to marketers is the fact that Facebook doesn't offer them access to the conversations that the social network's 950 million users are having among friends. The company hides those discussions for consumer-privacy reasons. In lieu of such data, marketers have had to use other metrics, such as how many people "like" a brand's Facebook page.

But the monetary value of a "like"—the equivalent to a thumbs up from a Facebook user—is difficult to assess. Sav Banerjee, executive social strategy director at New York digital-ad agency Rokkan Inc., found that in most cases when he paid for ads to get users to "like" a page, the number in fans went up but the number of people engaging with the brand page stayed the same.

"The investment doesn't translate to ROI," said Mr. Banerjee.

Under Ms. Everson, Facebook is now considering giving advertisers a sliver of data from conversations. For example, Facebook would tell advertisers how many people are talking about their brand, the top things they are saying and those people's demographics—but not violate privacy policies by revealing information about individual people.

Keith Camoosa, executive vice president and head of North American research for Universal McCann, the media buying unit of Interpublic Group of Cos IPG +0.09% ., said he has pushed Facebook executives to let marketers see more of what consumers are saying about their brands.

"The number one driver of new sales comes from word-of-mouth, and that's something marketers can't see with Facebook," he said.

Other marketers, such as Thomais Zaremba, digital marketing manager for Ford Motor Co., are optimistic that Facebook will be able to share more data.

"We couldn't determine who was seeing our ads and what actions they were taking from seeing the ads," said Ms. Zaremba. Google, she said, gave more detailed information.

Ms. Everson decided her team needed to construct an entirely different tracking system. The idea is to methodically comb through industry sectors and develop new measurement methodologies for each group—from consumer packaged goods to the auto industry. In particular, the company has focused on breaking down who has seen an ad by region so it can be compared to other regions.

To help with the process, Facebook asked big brands like Unilever to send in their marketing and research gurus for targeted sessions. Late last year, Unilever sent 10 emissaries to Facebook for two weeks. The group spent one week at the company's Silicon Valley headquarters and the other in New York.

During the confabs, Patti Wakeling, Unilever's head of advertising research, said she told Facebook's head of research and measurement, Brad Smallwood, that she needed to better understand the data Facebook was using so it could be applied to the ways Unilever studies how its ads perform.

Facebook, which previously only provided advertisers with the number of people who saw an ad on its site, soon gave Ms. Wakeling other data on how many people saw Facebook ads in a variety of areas. Facebook also figured out how many people in a region saw a paid ad versus other types of ads such as print, radio or TV.

The moves meant Ms. Wakeling could begin comparing how many people in one region were exposed to a paid Facebook ad against the number of people in a region who were exposed to a television ad. By comparing campaigns across regions, she could track the success of the ads with any resulting increase in sales in the specific regions. Ms. Wakeling said Facebook was "very collaborative."

Facebook's Mr. Smallwood also ran a series of test ad campaigns with advertisers between last October and this January based on the methodologies they were learning from each other. By April, Mr. Smallwood had conducted 63 such campaigns.

Later in the year, at another Facebook meeting with its Client Council in New York, Mr. Smallwood displayed a chart to the gathered executives. Out of all 63 test ad campaigns, only one campaign had a less than one times return on its investment. The majority showed a return on ad spending of three times or better.

One of the campaigns was for Unilever's Suave beauty and grooming products. Using the methodology Mr. Smallwood developed with Ms. Wakeling, Facebook was able to show that for every dollar Unilever spent on the social media site, the consumer products company got $8.41 back in sales.

Unilever's Mr. Weed described Facebook's efforts as "impressive." But he added that Facebook must continue to evolve its strategies. "These things are a journey," he said. Unilever declined to comment on how much money it is spending on Facebook.

Facebook also began bringing in third-party firms to independently study the results of its ads, in order to show that people exposed to an ad were more likely to purchase goods.

About two months ago, Facebook's measurement team visited Universal McCann's Mr. Camoosa with results it gathered through a third party called Datalogix. The company identifies people who have been exposed to an ad on Facebook and then mines retailers' credit-card and purchase data to determine whether those people bought the product.

Mr. Camoosa said the data showed there was a correlation between exposure to Facebook ads and product sales—but that it didn't show that the ads necessarily were more effective than other types of online ads. Facebook is "at step one," he said.

As for the holy grail of return on investment, Ms. Everson said, "I don't think anyone cracks it. The best thing you can do is create a methodology."

Some marketing executives remain skeptical. "I won't tell you that I buy the [Facebook] results 100%, but I accept the results 90%," said Jack Klues, CEO of Vivaki, a digital-advertising firm owned by Publicis Groupe PUB.FR +0.90% SA. "I'm cautious on how literally to interpret" the new data.

Others are beginning to act on the new Facebook information. By last month, GM and Facebook were in talks to bring the auto maker back as a paid advertiser, after Ms. Everson met with GM's then-global marketing chief at an industry conference in France.

A spokesman for GM said the company has had meetings with Facebook.

Ford and Coca-Cola have also recently endorsed Facebook's ads as having an impact on their sales. Coca-Cola marketing chief Joe Tripodi said at the same advertising conference in France that Facebook ads probably help drive its beverage sales.

"If we can get 40-million plus fans, or even some subset of them talking positively about the things we're doing, ultimately that's a good thing for us," Mr. Tripodi said.

Meanwhile, Wal-Mart's Mr. Quinn said he is increasing his Facebook ad budget this year, though he declined to reveal dollar figures. Facebook advertising is "one of the major growth areas in Wal-Mart's marketing efforts," he said.