Facebook Inc. FB -0.85% has been planning for months to dive into the lucrative market for online video...
ads. The holdup: CEO Mark Zuckerberg doesn't want to annoy its 1.1 billion members.
As soon as this fall, Facebook plans to launch a video-ad service that will show members 15-second-or-less clips on both smartphones and the Web, according to people with knowledge of the matter. Facebook needs the ads to be sufficiently splashy that they will convince brands to fork over roughly $2 million per day.
Yet since earlier this year, Mr. Zuckerberg and his engineers have toiled over how to make the ads not so distracting and slow that they alienate users, according to current and former employees and advertisers. The videos will appear prominently on members' homepage news feeds, the people familiar said.
Striking that balance between consumer happiness and commercial opportunity has been a challenge for the young company, leading to delays and frustrations among the marketers it is trying to woo.
Some advertisers, for instance, began creating video ads in anticipation of a summer rollout, but had to find alternative marketing plans for time-sensitive products after delays, people with knowledge of the matter said. Despite some grumbles, several big brands have committed to buying ads for the launch, according to people familiar with the matter.
In large part, Facebook has dragged its heels because its video technology needed a major upgrade.
One particular concern for Mr. Zuckerberg was that the video ads should load quickly. His engineers have toiled to develop the needed back-end technology for fast delivery, according to the people close to Facebook. Meanwhile, the company had to build out the technology to give its members a more prominent tool to upload and watch clips, which is expected to debut soon.
Mr. Zuckerberg, who has squashed ad products in the past, "set an especially high bar for the team," said one former Facebook employee with knowledge of the process. Mr. Zuckerberg has been heavily involved in the development of video ads, approving changes at every turn and pushing his team to repeatedly test with small groups, to understand how the ads impact activity and time spent with Facebook, according to two people close to the company.
Internally, there were also many discussions about how to limit video ads, while giving advertisers enough room to showcase compelling content.
Facebook debated, for instance, whether to give users the option to stop the video ads from playing automatically—a sensitive issue for users on mobile phones, according to one person close to the company.
Several ad executives said Facebook told them that the videos will automatically play without sound. But a user needs to tap an ad, to restart it and enable audio, these executives said. Users will only be exposed to one video advertiser per day, though may see content from this advertiser up to three times a day.
But Facebook also needed to give advertisers more than 15 seconds. To better compete with standard television ads, Facebook will allow brands to showcase up to three videos in "carousels," a feature in which users swipe from right-to-left to see two more videos from the advertiser, these people said.
"Time will tell if this is viewed as intrusive or highly relevant and welcomed by Facebook users," said Tim Spengler, chief executive officer of Magna Global, a media buying unit of Interpublic Group of Cos. IPG +0.31%
Facebook joins a growing legion of traditional media and Internet companies, including Google Inc. GOOG +0.23% and Twitter Inc., that are trying to grab money that advertisers currently spend on television, a decades-old medium. Advertisers are expected to spend $66.4 billion on TV ads in the U.S. this year and just $4.1 billion on online video ads during the same period, according to eMarketer. Still, the amount spent on online video is expected to grow by more than 40% this year, the research firm says.
For Facebook, video represents a potential catalyst for the company. In the past two weeks, Facebook's stock has risen 45% to above its IPO price after showing in an earnings report it is making money from mobile advertising faster than many investors expected.
With more than one billion users, Facebook can guarantee marketers a global reach that few can match.
But many advertisers are concerned about the high price of the ads themselves, several media buyers said.
According to executives familiar with the ads, Facebook will charge around $2 million per day to let advertisers reach the full Facebook audience of adults aged 18 to 54. As a comparison, a 30-second spot during the last Super Bowl cost advertisers about $3.8 million.
The company is also allowing advertisers to pay less money to reach segments of the Facebook audience, such as all males aged 18 to 54.
One marketer initially considered buying an ad, but ultimately walked away because it found the ads too expensive and struggled to justify the cost, according to an agency executive.
Facebook has told ad executives that the video content will be approved by the company, according to people familiar with the matter. Some advertisers worry they will end up spending more money on creative development, on top of what they are spending on the ad placements. Others, however, are repurposing content made for television, according to one ad executive.
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