Ken Mandel (K):

Erik, thank you so much for joining us.

Erik Johnson (E):

Well, thank you for inviting me here, as well as everyone who attended.  It’s great to have the forum - It’s great to be here.

“Not your average company….”

K:

Why don’t we just jump into it?  Thank you for taking the time again, so close to the IPO -  it’s very generous of you to give us that time, and I know you and everyone at Facebook must be very busy. 

How many of you have watched the Investor road show video.  It’s actually very entertaining.  I mean that in a good way, it’s like entertainment.  This company doesn’t do anything the typical way and including the Investor road show video.  I encourage you to take a look at it because there are some amazing stats in it.  More than 125 billion friendships on Facebook. 125 billion with a “B”.  300 million photos uploaded every single day.  2 billion “Likes” a day, and comments are left over 1 billion times a day.  900 million users on a monthly basis and half a billion daily.  And 488 million mobile users.  This is not your average company. 

E:

There’s a lot of commentary about what’s going well and what’s not.  And I think that sometimes the big numbers mask a lot of the more subtle stuff that’s going on but in fact it’s more interesting as it reflects how our industry is transforming.

To your specific question, we did announce in New York on the 29^th, we had FMC, which was Facebook’s first kind of marketing event, where we brought a bunch of people together. What we decided was rather than doing a rolling kind of road show thing, we do them over time to keep the content fresh, rather than just repeating the same thing over and over again in a bunch of cities.  At some point we’ll do something here in Singapore, or probably also in Sydney and Hong Kong. 

Specifically, we announced a few different things.  Probably the most important was to redesign the pages, and at the end of the day we looked at some statistics and the numbers that Ken was referencing.  Really the most important thing about the social web is having a presence in the social web. 

So there are 900 million active users on Facebook, just for comparison, there’s about 600 million websites on the Internet.  So if you think about the number of people who are there versus the number of websites, we’re moving from what we call the information web to the social web.  When people want to interact with people, they make decisions based on that. 

Advertising on Facebook

K:

You guys have rolled out a series of new advertising products.  I think it was February 29? Can you just tell us a little bit about them and what’s changed, and how does that affect people in this room with these new products and your insights and how they can take advantage of these products.

E:

The most important thing that we announced was the ability to redesign pages the way we thought will make it easier for brands to tell their story.  And in a world where people are connecting to people, that’s important. 

What do you do on Facebook, what do you do on a social media site?  You tell stories, and here at this event, you check in.  I’m having lunch with my friend, Ken, I check in.  And I talk about it, and then people engage and say, wow I love that restaurant, I can’t wait to go there myself or my sister went there and had a bad experience.  So not all good stories, but they’re stories using engagement.  And what timeline has allowed people to do, both for users but now for brands, is to tell a story about what your company stands for.  What are the products and services you’re selling and what you stand for. 

In addition to that we announced some very specific advertising pieces that go along with that.  We announced a new set of premium products that will allow you to put ads in the Newsfeed, so if you’re into storytelling you’ve got great page post on your page, you can now put those on Newsfeed by buying a premium ad product.  

We announced Mobile, so that advertisements on a Newsfeed will also show up on Mobile so that half a billion people who were accessing Facebook on a monthly basis on Mobile will now also have an easier way to discover brands, as brands choose to promote their offerings.  

And then we announced a third thing, which is a product called Reach Generator.  What Reach Generator is, one thing we talk a lot about is, if you think about big numbers, these 900 million and 500 millions and billions and all kinds of huge numbers, it can be a bit overwhelming.  And I think really, that’s the world that we live in.  If you take a step outside this hotel, you’re going to be bombarded with marketing messages at a pace that you never were before.  You’re checking your email on your phone and you’re getting ads, and you look up there’s an ad at the taxi; walk down the street there’s an ad.  And on top of that your choice is bigger than ever - there’s more restaurants, there’s more things to buy, there’s more places that you can travel to, there’s more movies you can see, there’s more channels on television.  There’s more and more and more.  And what we find is that, if you’re a brand trying to get your message out in all that clutter, it’s tough.  So one thing that’s great about the social web is that you can rely on people to help you tell that story.  And what Reach Generator does is it allows you to make sure that your message is reaching at least 75% of your fan base.  And that’s important.  Some brands will have a great page, but maybe they haven’t got their posting strategy up to stuff yet, or maybe they’re a new brand and they’re not getting the engagement that they want.  They can buy something like Reach Generator.  

We did announce one final thing, which is this Logout Experience Page, which right now we’re running only in Australia, and in this region we will be running it in rest of Asia in the next thirty days, which is a way to have a bigger, kind of a richer advertising experience.  We didn’t spend a lot of time talking about that because those ads are less social than the ads on the site.  When you’re on the site, and that’s really the mission of the company, is to make advertising more social.  

So that’s a pretty detailed announcement about the four things that we’ve launched.  New pages, ads and Newsfeed, ads and Mobile, Logout Experience, and then the, sorry, the Reach Generator and then the optional one which is the Logout Experience.

K:

Wow, that’s a lot happening at Facebook.

E:

K:

E:

Look, at a forum like this, obviously this is a lot to absorb; I thought I’d give a detailed answer to the question just in case people haven’t heard this.  A lot of this is available on the Internet.  

So you just have to remember the five ads, but I think it’s important whenever you talk about the types of ads, tie back to why we have those types of ads.  Why the page is important and why we believe social advertising will work in a cluttered world where you’re bombarded with marketing messages and really, you’re spoilt for choice just in terms of what you can do and buy and consume any given day, in the world we live in.

We didn’t talk about Marketplace ad, actually, you took us through a lot of the premium stuff but what’s the role of the Marketplace ad.  How should you be using it?  In conjunction with the premium or how do you see it?  How do you use a Marketplace ad on Facebook effectively?

That’s a good question.  So we sell advertisements through Marketplace, which is in the platform and we also sell advertisements much like the other publishers do, like a premium ad.  And we always differentiate it because we have some small businesses that want to buy in the platform, and we have some large businesses who want to not only buy advertising immediately and they also want to engage with Facebook on deep measurement activities, and marketing activities and things that are more strategic in nature.  

So we have quite a big continuum from really, really big companies to single individual start-ups who want to buy advertising.  So we had to come up with a solution that we bridge both of those.  The easiest way to think about is actually a graphical image that we use to describe it.

Marketplace is great, if you just want to have an always on-market approach.  So that could be to acquire fans, it could be just the approach you’re going to have to repeat some messages periodically.  You buy marketplace advertisements.  If you’re a small business, that’s what you’re probably ever going to do. You’re not going to launch big brand campaigns if you’re a small business.  

Then you’re going to buy premium ads if you really want to go and move the market or something - you’re launching a new product, you change the brand of something, you’ve got some new features coming out.  That’s a great way to use premium ads.  And on top of that, I talked a little about this Reach Generator.  You may decide that there’s something really special going on, I want to boost it and make sure everyone can see it.  There’s another kind of line that comes on top of that.  But really it depends.  Small businesses can buy premium ads if they want to spend that money, or happy to do that, we’re happy to talk to them about other services.  Some big companies buy marketplace ads as well.  It’s less about price and more about convenience and more about how much time you want to invest in the conversation with Facebook.  

Again it goes back to our  three priorities, the first being to add users, the second being making brands more social.  I think that that’s a big part of what we want to do and those conversations take time.  We have to spend time with a specific brand, the brand spends time with their agency, their agency will come up with some ideas as well.  It’s a much longer discussion.  And premium ads fit very, very well there because it’s a customised solution.  It can be a customised solution and you can add things alongside of it.  So most companies do both.  Most big companies do both.  Most small companies just buy marketplace.  It really depends on what you’re trying to accomplish.

The Medium & The Message

K:

I think that there’s a fundamental shift of the content becoming the ad and the ad becoming the content.  And that’s the kind of point that everyone wants to get to in this room, where your advertising actually is so useful to people, it’s no longer advertising.

E:

I don’t think that’s anything new, actually, that’s the way it’s always been.  And we talked about this actually, interesting enough, at the FMC in New York, which is, if you go buy a magazine from the 20s or 30s and you look through it, almost all of the articles will be completely out of date and irrelevant.  It will be about stuff that doesn’t exist, it doesn’t matter, it’s not important.  But if you look at the ads, and now that you’re 70 or 80 years old, the ads are amazing, because they’re really well done.  And people look at those ads, even today and say; wow that’s a great advertisement.

People were trying to tell a story with this and they’re entertaining.  That’s always been the role of advertising, and I think what’s changed is that we now, through technology, have the ability to bring people into this as well.  So the creativity matters just as much as it always did.  The entertainment value matters just as much as it always did and now we’ve just added another layer; which is people on top of it.  

On Asia

K:

Let’s talk a little bit about Asia -  when you see the numbers in the investor video, obviously Asia’s a lot smaller than, in terms of those dollars compared to America. 

E:

K:

E:

So on Asia, again we’re lumping all together, but in some parts like Indonesia, India, Vietnam, if you go talk to anybody in any company, you will talk to someone who works in a big FMCG company and what they’re going to tell you is that, their RPU is lower in those countries as well.  

They’re going to say that I sell smaller sizes of toothpaste in Indonesia because people don’t have the cash flow.  They buy and use as much toothpaste as someone in North America; they just buy in smaller tubes more often.  And that’s the world that we live in.  And if you’re a marketer, what that means is, if you are marketing toothpaste in that example, you obviously have less money to spend on that one tube of toothpastes’ cost because it doesn’t make as much money.  

So we have to realize that no matter what, if you’re in the business of advertising which is getting people to buy your product or service.  

If you’re in parts of the world with lower GDP per capita, you’re always going to have a lot less money.  And if you come back to the first point, if Facebook is successful, in actually getting most of the people on the planet to be connected to each other, you’re going to have pockets of areas around the world where the overall GDP per capita will be a lot lower.  

But I think that’s true, getting to your question, not just for Facebook, also for any large company, once they hit a sale point, you’re no longer just looking at that kind of, a lead group in any one country.  You’re looking at the mass, the overall country dynamics.  And that case is always going to be less.  

And in this part of the world, looking at social media advertising or whatever we’re going to call it, or advertising on Facebook, will it catch up sooner because it’s inherently more social? When is that gap going to close in this part of the world, or is that an unfair question given that there’s so many different markets?

Probably not.  I think that at the end of the day, the economies in Asia are great growth trajectories.  And if you look at places like in India and Indonesia, and the growth in GDP and more important, GDP per capita, it’s significant.  But until that catches up to be something at least like, Central Europe, we’re not going to see huge, huge numbers.  Now what we will see, however, is that because of the scale, and this was on some of the slides we saw earlier, we saw so many people online that the aggregate, I think Asia Pacific represent a very meaningful part of global revenue for any multinational company, be it Facebook or anyone else who is operating on a global basis.  But on a per user basis, and those were the numbers in the road show, I think Asia will be relevant for quite some time.  

K:

E:

Now what if we look at markets like Korea & Japan for a moment : these are markets where Facebook isn’t quite dominant -  is that just a matter of time?

If we just talk about Korea and Japan, think the story is different in the two.  In Japan, we just announced, 3 weeks ago, that we passed 10 million users in Japan.  And that would make us, depending on who you talk to, the largest PC and phone-based social network in Japan.  Twitter also has a large following - very, very focused on mobile.  And their user numbers may be a little bigger than that.  Japan, we’ve seen a lot of really good trajectories recently.

I think the main reason that’s happened actually, and this is unfortunate, but we’ve called it out really in Japan is, Japan’s changed a lot since the natural disaster in March of last year.  The country’s changed tremendously; I think that a lot happened.  There was terrible devastation, there was an awareness reaching out to people outside of Japan for help, it can be a good thing, and social media played a role in that.  

There’s been a lot of internal dialogue around how much you can trust your government, and when the government is doing the right thing, social media has been a big part of that.  And I think in general, it’s not just about Facebook, it’s about the social web.  There has been quite a synching on how people view a service like that.  

In the past, I think people looked at as a way to go play games.  And that’s a great thing that you can do online and the social network has a role there, but it’s not the role that Facebook wants to do.  Facebook is a real name, true identity site, and that plays out differently.  So in Japan, I think the main thing that happened is just a change in attitude, to be honest with you.  

Korea, the situation’s a bit different.  In Korea, there have been a number of companies who’ve been in the gaming spaces well, but very, very active in terms of social networking for a long time.  And they’ve built up a very, very strong base.  And at the end of the day, the only way that Facebook actually goes and take share from companies like that is providing a better experience.  

And this gets to a number of things : I think that the better experience that Facebook provides is we make it easier to share, so whether you are talking about the 2 billion “Likes” per day, and actually for the first quarter of this year, it was actually close to 3 billion.  So that’s a tremendous amount of engagement, and in order to drive that engagement, you’ve got to design the site the right way.  And I think Facebook has succeeded in doing that and that’s something that in countries like the US, when Facebook launched there really wasn’t much competition.  

By the time we got to Asia, we moved into some markets like Korea where there was some strong competition.  So to your point around, are we winning, are we tipping?  I think we want to be humble and say we’re providing a great service and a great experience and we hope that people will continue to use it.  And I’m pretty optimistic about the trajectory.

K:

In all of Asia, mobile is incredibly important.  And that revenue number for mobile, for 600 billion, was about 1. 5.  It’s really tiny, and so in this region is there anything that you’re doing to grow that number?  

E:

It’s way too tiny.  Again, Mobile is a bit of a tale of the two cities here, and you’ve got the feature phones and smartphones, the answer is a little bit different between the two of them.  

So we don’t want to generalise too much but let’s just talk about smartphones for a second then we can bridge back to feature phones, because there are a lot of those in circulation in our part of the world.  At the end of the day, this is not a Facebook-specific problem.  

The problem, we were talking about advertising and the fact that were inundated with marketing messages.  And for a long time what that meant was sight, sound and motion.  And sight, sound and motion takes up real estate - it takes up space because you got to be able to see it, maybe not to hear it, but it takes some space to see it, especially if you have motion.  No one wants to see it, watch videos the size of a thumbprint.  It takes space.  It takes up pixels in the digital world.  

And so no one has really found an effective way and say, I’m going to build a great advertising business on a phone.  I mean an iPad maybe, but on a phone, no.  Just because the real estate is small.  And that’s the classic way of saying advertising is like this and how do we take this and move it onto the phone, and I don’t think that’s going to work.  

My personal opinion but I think that Facebook shares that opinion as well.  I think what might work in part of the reason we’re so bullish about Mobile is that, social advertising where a friend of yours says, with a text-based ad, wow I just bought this product and I thought it was great.  That’s good advertising.  That’s advertising because you heard it from someone you know and trust.  And our model isn’t that simple, but we don’t pay people to promote products on our behalf, what we do instead is, why don’t we use a user and engage with a brand that you care about.  

And I do that, I go and like a page, I correspond with that brand, and then the brand can say, wow Erik likes this particular product, I can go boost that with advertising.  That advertising is less intrusive A., B. takes up a lot less real estate, and C. is something you can participate in, so you can become part of a dialogue as well. So in my view, it’s a better form of advertising than what you used to get on television and print.  So with those 3 things, I’m really, really optimistic.  

Now the challenge of course, is that you also don’t want to take over somebody’s Newsfeeds, so we can’t have hundreds of those ads where you see every day, that will be overwhelming.  So that the thing that we’re trying to figure out is, how do you take that?  I think we’ve got a great solution for mobile advertising by having an ad in the Newsfeed.  The question is how many of those should we show and how do we make sure we’re being evitable across the different brands.  And that is the challenge that we’re working through.  

Now quickly on smartphones, the good thing about that story is that we’ll also work on a smartphone - much better than a little mini banner ad or clickable video.  So I also feel like, not only am I optimistic that we got the right advertising type and something that’s meaningful to take over your whole smartphone this way, I think it will work quite well on an old-school text-based feature phone as well.  

Stay Tuned for Part II of the Conversation, around