February 21, 2011 8:46 pm

Facebook ad potential starts feeding frenzy

Advertising agencies and technology investors are rushing to snap up fledgling companies that are providing additional marketing services around Facebook, as a new industry grows up on the back of the social networking phenomenon.

Start-up companies in the US and Europe have rushed to fill gaps left by Facebook’s own facilities for advertisers and their agencies, by providing tools to manage the “fan pages” of brands and more sophisticated ad-buying techniques.

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Vitrue and Buddy Media, two US companies providing Facebook page-management services, have carried out multimillion-dollar rounds of funding in recent months. Both provide technology to let large companies manage their Facebook presence across different countries and regions.

“In the next five to 10 years, marketing organisations and agencies will use software to manage their contacts and connections,” said Reggie Bradford, chief executive of Atlanta-based Vitrue, which tripled its revenues last year.

Its clients, which include McDonald's, Ford and Best Buy, pay for subscriptions to access Vitrue’s “software as a service” online console.

Mark Read, chief executive of WPP Digital, the internet and investment arm of the marketing services group, led a $5m investment in Buddy Media last year – an indication of how seriously advertisers are taking social media.

“Our clients are increasingly interested in Facebook,” he said. “There are a lot of practical challenges in managing pages, across countries, implementing campaigns. The better we are at implementing Facebook pages, the more work we’ll win from clients.”

Last month, Experian, the UK-based information services company, acquired Techlightenment, a London start-up providing technology and consulting around Facebook.

“Social is a very important place for us,” said Mark Zablan, UK managing director of marketing services at Experian. “You can get any [client] meeting by saying, ‘How can I help you with your social strategy?’ That is where all the eyeballs are.”

Industry-watchers predict these deals are just the beginning.

“Social media is massive, that is not news to anybody. What has been really remarkable over the past 12 months is how Facebook is the new de facto platform,” says Frederic Court of Advent Venture Partners, which participated in Vitrue’s $17m fundraising last week. “The demand [from marketers] is absolutely massive.”

Part of the appeal for investors is that it provides them with a way to tap into the growth of Facebook, without having to tackle the hefty $60bn-plus valuation placed on the site itself. While providers of games on Facebook, such as Zynga, are also securing multibillion dollar valuations, marketing technology businesses relying on Facebook can fetch more reasonable valuations, in the tens of millions of dollars.

“It’s a very interesting way to play Facebook. Backing companies that are offering a business-to-business solution is a very different type of risk to, say, a gaming company,” Mr Court said.

Internet companies such as Google and Ebay have spawned their own ecosystems, from search-engine optimisation to automated bidding tools. With its open “platform” and system of hooks for third-party technology, Facebook makes it easy for other companies to integrate their services, often without Facebook itself having to be involved.

With Facebook still struggling to hire enough advertising sales staff to cope with demand from large advertisers, these companies benefit from referrals from Facebook and capitalise on areas where its tools fall short of some clients’ needs. But that does leave some tech companies at risk of being overtaken by Facebook, as it scales up its team and expands its own ad-selling and management tools.

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