Facebook Ad Model Is Friend to Small Firms

PALO ALTO, Calif. (TheStreet) -- The erstwhile dorm-room start-up Facebook recently hit a major milestone, exceeding Google(GOOG) to become the most-visited Web site for the week that ended March 13. And if that bar graph at Hitwise is any indication, the social networking giant shows no signs of stopping.

For entrepreneurs looking to spread the word about their products, it makes sense to expand beyond Google advertising and explore options at Facebook.

Advertisers looking to target a specific audience can't do much better than Facebook, which collects personal information about its customers as a matter of course. Those who advertise their Web pages or businesses on Facebook can reach out to users based on age and birthday, geography, interests, education level and connections. Users can seek out a company by becoming a "fan" of the company's Facebook page or RSVP-ing to a company event via Facebook. Facebook ads also appear in the margins of user's profile pages.

Advertisers have the option of paying for ads based on the number of times users view the ad ("pay per impression") or the number of times users actually click on the ad to get to the company's Web page ("pay per click.") The advertisers set their daily ad budget when they create the ad with Facebook's ad creation tool, and Facebook stops displaying the ad when the budget reaches its limit.

The cost of Facebook ads is based on a system wherein similar ads compete for the privilege of appearing on a page, via a complex automatic auction. There's no set cost for Facebook ads, but the higher the daily budget, the more an ad will appear on a profile page. If the daily budget isn't reached because an ad keeps losing auctions, the excess money goes toward the next day's budget (similar to the "rollover minutes" concept of AT&T (T) cell phone plans).

Facebook ads, which appear in the right margin of a user's profile page, are small and fairly unobtrusive. They comprise a small photo and a few lines of text. Many users tune out online ads, so getting anyone to click on an ad can be a challenge, even when it perfectly matches the target audience. One proven tactic to improve Facebook click-through rates is to make the users laugh. The product manager at Raven , a small Internet marketing company, reports in the Search Engine Journal that he initially had lousy click-through rates when advertising an online scavenger hunt on Facebook. But his results improved dramatically when he ran a photo of a puppy instead of the company's logo. "Puppies are awesome," the ad read. "So is Ravenhunt. Play RavenHunt and win cool stuff."