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Stephen Foley: Facebook's attempt to be friendly will not leave investors drooling


US Outlook I think we just discovered the cost of the privacy outcry. Facebook tried so hard this week not to offend privacy advocates with its new services for advertisers, including a way to place ads on its mobile site for the first time, that the result was – well, underwhelming.

The plan was a particular disappointment for investors expecting a "big bang" approach to launching mobile ads, hitting one of the central justifications for the sky-high valuation expected of Facebook's stock market flotation later this year.

Sheryl Sandberg, chief operating officer of the social networking giant, opened Facebook's first conference for the marketing industry with what sounded like an Orwellian nightmare: in 1993, when The New Yorker ran its famous cartoon, it was true that "on the internet nobody knows you're a dog", she said, whereas today we know everything about you – and your dog probably has a Facebook page.

You could hear the sound of investors salivating at this point, but it turned out that Ms Sandberg wasn't promising a deeper plunge into the mining of personal data on behalf of advertisers.

What Facebook did say was that it will follow Twitter's lead and start putting "sponsored stories" in users' news feeds. There, these ads – sorry, "stories" – will mingle with the latest photos from your friends and videos uploaded by your little brother. Because there is so little room on a smartphone screen, Facebook has decided the news feed is the only place for such "stories" on mobile.

The company insisted that such news feed "stories" could only be served up to people who have previously hit the "like" button on a brand's Facebook page. That means Harvard University could reach up to 1.5 million people; Kim Kardashian could market herself to 8 million. Users are in effect opting in to this kind of advertising. Many people already see activity related to brands they have liked; the new "sponsored stories" feature just means those posts will hang around a bit longer than they might otherwise.

So far, so modest. Carolyn Everson, Facebook's head of global marketing solutions, told me that users would see an average of just one sponsored story per day, at least for the time being. "Eighty per cent of my job," she said, is teaching advertisers how to use Facebook as a marketing tool, from how to behave like a genuine friend, to producing little nuggets that users want to share. Instead of spamming users with ads, Facebook is trying to persuade marketers to produce nuggets of content that don't feel like ads.

That is the reason for rebranding ads as "sponsored stories". The open question is whether, if advertisers actually get it right and produce content as entertaining and shareable as your friends' posts, whether they will actually need to sponsor their promotion at all.

Facebook has got it right for the long run: make ads better before selling the hell out of them. But that putative $75bn-$100bn stock market valuation is predicated on a quick and dramatic expansion of the $3.15bn in ad revenue it saw last year. On the evidence of this week, that might be a long time coming.