Facebook allows bespoke mobile ads, shores up Achilles Heel

SAN FRANCISCO (Reuters) - Facebook Inc is making it easier for advertisers to reach the growing ranks of users on smartphones and mobile devices, taking a significant step toward addressing one of investors' most pressing concerns and broadening its appeal to marketers.

The company, which has seen revenue growth slow in past few months, began letting marketers craft ads destined specifically for mobile versions of the No. 1 social network on Tuesday. It's also letting advertisers direct ads into users' news feeds. Both represent significant shifts for the company, which has until now restricted marketers' presence on certain parts of its service.

The eight-year-old company started by Mark Zuckerberg in his Harvard dorm-room on May 18 became the first American company to debut at over $100 billion value; but mounting worries about its inability to fully transform a growing mobile presence into ad revenue have helped wipe $32 billion off its value.

Shortly before the IPO, several analysts lowered financial targets on the company after Facebook cautioned about its revenue growth due to the rapid shift by users to mobile devices.

"It is a major drawback to Facebook that they have been unable to monetize the mobile activity of its user base," said Brian Wieser, an analyst with Pivotal Research Group.

Previously, advertisers could buy a broad category of "sponsored stories": advertisements that would run on the website. But Facebook controlled whether the ads actually appeared on mobile devices, and in users news feeds.

The tweaks to its advertising system come at a time investors are questioning the long-term money-making potential of Facebook's underlying business, and the social networks' effectiveness as a marketing channel.

A Reuters/Ipsos poll released on Monday found that four out of five Facebook users have never brought a product or service as a result of advertising or comments on the site.

The shares closed Tuesday down 3.8 percent at $25.87, after setting a record low of $25.75. Facebook's steady share-price decline has drawn criticism -- and lawsuits -- from investors accusing the stock of being overpriced at an IPO level of $38.

Others demanded compensation from the Nasdaq exchange for a series of glitches that delayed the start of trade by about half an hour.

Nasdaq OMX Group Inc has reached out to at least one brokerage that lost money due to the botched initial public offering, saying it will make an announcement on Wednesday, a person at the brokerage firm said.

The exchange, which has battled NYSE Euronext for the highest-profile IPOs, is expected to release details of a plan to make up some losses sustained by banks and trading firms, collectively estimated at above $100 million, according to the Wall Street Journal, citing unnamed sources. Nasdaq declined to comment on Tuesday.

BALANCING ACT

Facebook faces a delicate balancing act as it strives to keep its advertisers and its 900 million users happy, while fending off competition from rival Web services such as Google Inc .

Making the mobile version of the Facebook more accessible to ads is a "necessary step," Pivotal Research Group's Wieser said.

But Facebook should continue to take a gradual approach to mobile ads so as not to irk users unaccustomed to commercials intruding on their small mobile screens, he added.

Facebook spokeswoman Annie Ta said there would be a limit to how many ads appear in users' mobile feeds, though she declined to say what the cap was.

The latest changes are part of Facebook's efforts to make its advertising-system easier to use, she said.

"We want to make it easier for advertisers to get the distribution they want," she said.

Debra Williamson, an analyst at eMarketer, said that some companies which committed to large advertising purchases on Facebook last year are now evaluating the performance of those ads and buying new ads on an as-needed basis.

"There's been a general acknowledgement by marketers that last year they spent a lot of money acquiring 'likes' and now they want to know what to do with them," said Williamson.

A February study by ExactTarget, presented in a graphical chart by eMarketer, suggested Facebook fared worse than email or direct-mail marketing in terms of influencing consumers' decisions.

Facebook generated $3.7 billion in revenue last year, primarily from advertising. But revenue growth has slowed in recent quarters, stoking concerns about its ad business.

In recent weeks, Facebook has taken steps to give advertisers more control over its "reach generator" feature, which broadens the number of people that can view a marketing message.

Until now, the service, which cost large advertisers upwards of hundreds of thousands of dollars over the course of several months, was "always on" ? it did not allow customers to choose which posts they wanted to amplify.

Smaller businesses grumbled that the feature was limited to major ad buyers, served by Facebook representatives.

Facebook is now making the service available on a self-serve basis, rather than requiring advertisers to deal with its sales representatives.

"This is really helpful because it's so a la carte," said Jim Tobin, the President of Ignite Social Media, a social media marketing agency that counts Chrysler and Samsung among its clients. "Even for big advertisers who may be spending a few hundred thousand dollars on social, you have the flexibility to take a single post and amplify it.

"That's good for Facebook, because a lot of $5 and $10 promotions from tens and thousands of advertisers adds up to real income."

(Editing by Edwin Chan)

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