RPT-Facebook sees ad potential bigger than Google search

PALO ALTO, Calif. Fri Oct 16, 2009 7:28am EDT

PALO ALTO, Calif. Oct 16 (Reuters) - Facebook's chief operating officer said the social networking company was targeting a bigger ad market than the search ad market that made Google Inc (GOOG.O) rich.

Sheryl Sandberg also told a group of high-tech specialists on Thursday that revenues were growing so fast at privately held Facebook that it turned cash positive recently, instead of in 2010 as predicted earlier this year.

A member of the board told Reuters the company was on target to bring in revenue of $500 million this year. Sandberg gave no numbers that would update that figure.

Sandberg, who has long fought the perception Facebook lacked a business model, described how the company aimed to bring in revenue from novel ads aimed at its 300 million users.

She said advertising was a "funnel" that starts at the top by engaging many people and creating demand, then getting to the bottom where a select group buys a product.

Google does a better job than any other company in advertising to people who are at the bottom of the funnel -- people who know what they want and are searching to buy it.

"If you look at global ad spend, it's about a $640 billion annual business ... It's 10 percent demand fulfilment," which is what Google's search ads do, she said.

"Where we are playing in the ad market is in that demand generation, which is the top 90 percent of the funnel," she said hours after Google reported third quarter net revenue of $4.38 billion, beating analysts expectations. [ID:nN14269544] Sandberg said Facebook has been shifting to an approach similar to Google's, in which the style of the ad resembled the style of its searches.

One success story she cited involved Starbucks Corp (SBUX.O), which posted a video that created complaints. In response, Starbucks altered the video and won kudos from Facebook members. She said the message was, "Thanks so much ... isn't it great to have a company that listens." (Reporting by David Lawsky; Editing by Dan Lalor and Derek Caney)

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