What Facebook's Financial Flop Teaches Us About Selling Advertising

True story. 

After a promotion to vice president of sales at a publicly traded dot-com publishing company, I started attending the weekly executive staff meetings.  This executive team was in charge of executing a business plan for a company that made 99% of its revenue from selling advertising, and I was the only person sitting in the room who had ever sold an ad.

Each week, our CEO would take his seat at the head of the conference table as we gave our individual team updates and then moved on to debating the priorities on the company’s rolling to-do list.  When our debates escalated to arguments, we would look toward the head of the table for a final decision in order to move on.   With his eyes darting up and down from his BlackBerry and his sockless toes dancing in and out of his loafers, our CEO would affirm, deny or table the issue until the following week’s meeting.  When the latter occurred, he would ask someone to “put it up on the whiteboard.”

One issue on the whiteboard ended up costing me my job -- and is indirectly why investors are losing millions betting on Facebook.  

But first, true story continued.

The remaining 1% of our revenue came from subscription fees paid by our core audience, whom we called “insiders.”  These site visitors valued our content enough to pay $5 bucks per month to access some of it before anyone else could.  During one seemingly innocuous weekly meeting, our director of consumer marketing, who was paid in part based on exceeding “subscriber” quotas, suggested we offer  “insiders” an advertising-free experience as a reward for subscribing.  At first I thought he was kidding but quickly realized I was the only one in the room laughing.

I did my best to explain what was perhaps an oversight by folks who have never been on a media sales call.  I replied that asking our salespeople to meet with media buyers and tell them how great our site is, how important it is to reach our audience, and that they couldn’t run ads in front of the users who visit the site the most was “umm, never gonna happen.” 

Apparently the room felt differently.  Other executives sensed we were on to something with this kind of carrot -- “and besides, we have plenty of inventory to sell that reaches the other people who visit the site,” they said. The issue hit my brick wall, so we all looked toward the head of the table, and our CEO asked someone to put it up on the whiteboard. It remained there for weeks.

It finally came off the board the first Monday after I was fired.  That day, a pop-up explaining the “advertising free” benefits for subscribing ran on the site’s home page. 

The argument that this carrot would drive new subscription revenue -- while any potential lost ad sales revenue would be hard to identify -- is an easy one to make for those who have never been on a media sales call.  For those who make their living meeting with clients and buyers, you can see why this incentive would make us look like jackasses in front of them.  It would be like telling a kid who walked into your ice cream store that you carry his favorite flavor, but it’s only available to the people who work there.  Now can I interest you in a waffle cone of your second or third flavor choice?

So how is this related to Facebook’s failures? 

This business decision I recounted was a poor one, and yet it was made because executive teams at companies that make money selling advertising are largely made up of people who have never sold any ads.  Even if there is one executive in the room who has experience selling ads, he/she is far outnumbered by those who have none.

The guy in the hoodie who sits at the head of Facebook’s table has never sold an ad -- and worse, has a dismissive disposition on the practice of selling them. His disposition is remarkably similar to so many senior executives at media publishing entities who often think it’s not that hard to  “go out and sell ads” because they don’t understand how it gets done.

Selling million-dollar ad programs to advertisers that spend hundreds of millions each year trying to connect their brand to consumers is an art form.  It takes an innate ability to operate successfully in the grey, create something from nothing, and then paint a picture with colored lines of communication.  It’s hard to do well.

Executive teams at companies that sell advertising to make money often make decisions making it harder for their own salespeople to succeed. I think that’s where Facebook’s problems live.  Sponsored stories are not all that interesting to buyers and clients, and Facebook is not all that interested in being creative or flexible -- so investors will continue to suffer.

I think the Facebook financial flop signals the initial descent of senior executives running media publishing companies who don’t know how ad sales works from personal experience.  It’s no accident that Tim “the ad sales guy” is running AOL, and now Ross is at the helm of embattled Yahoo.  Before they were CEOs, they were both exceptional media salespeople.

If you are an ad sales account executive reading this column, please heed my advice.  Eliminate all the minutes you waste on personal communication between Monday and Friday, and focus on being the very best media sales professional you can be.  Your time to rise all the way to the top is coming, so start climbing now.

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4 comments about "What Facebook's Financial Flop Teaches Us About Selling Advertising".
  1. Peter Rosenwald from Consult Partners , June 14, 2012 at 3:38 p.m.
    Right on, Ari. As the former CEO of an advertising group and senior exec at a giant media company I endorse every word you say. Most advertising is a considered purchase and what you describe would certainly turn off any advertiser considering the site.
  2. Craig Mcdaniel from Sweepstakes Today LLC , June 14, 2012 at 4:01 p.m.
    Hi Ari, Nice story. Facebook does have a business media sales team that works under Wildfireapp.com. They sell sweepstakes and contest administration and creation. Then they sell ad space on FB of these sweeps they create or sweeps created by the sponsors. In short, they are a competitor to my company, www.sweepstakestoday.com I knew that the FB IPO would flop after some ad agencies told me that Sweepstakes Today out performed FB in clicks and entries on a handful of sweeps. Here is the reasoning I believe: ST concentrates on the US market, not the the world market as FB does. With 20 to 30 percent of all new ads that come out have a sweep, contest or giveaway imbedded in the promotion, these sponsors are only interested in the US market and is also limited by Federal and state laws. The other big problem for FB is the fact their demographics are much younger than ours. The sponsors want people who enter the sweep to have a job and money in their pockets. Last, my members have some pretty strong opinions about Facebook. They prefer the sponsors to run their sweeps on their own domains. I think more sponsors will see the same in the future. I would ask this question. in five years, will Facebook have more revenue or profit than Yahoo or AOL?
  3. Paula Lynn from Who Else Unlimited , June 14, 2012 at 4:25 p.m.
    Once upon a time in the newspaper business....1 story: .writers needed ad support for their wages, but ignored the ad departments when we needed their in-house support with negotiations for example. And how the constant crack down on make goods or limit to 20% when production screwed up for a variety of reasons. As one person explained: You bought a shirt. Half a sleeve is missing after you get it home. Will a 20% discount do so you can wear it with a partial sleeve ? Poor management with a lack of process comprehension and tackling their own team runs deep.
  4. Tony Anderson from SF Ad Guy , June 14, 2012 at 9:51 p.m.
    Bravo Ari! You nailed it with this one!