Starting in January 2012, Facebook will gradually begin showing Sponsored Stories social ads in the main news feed of the web version of the site, a representative of the company tells us. Facebook hasn't shown ads in the news feed since 2008, so this has big ramifications for advertisers and the user experience.
The ads will be marked “Sponsored” and a rate limit will ensure users see no more than 1 Sponsored Story in the news feed per day. They'll only feature stories about friends or Pages that users already like. Users won't be able to opt out of seeing Sponsored Stories in the news feed or having their activity used in them, but they will be able to ‘x' out individual ads. The ads won't immediately appear in the mobile news feed, though Facebook is considering the idea as we discussed earlier this month.
The screenshot above shows how the ads will look in the news feed. The ability to display promoted content alongside organic social content in the popular and highly addictive news feed is essentially the holy grail for advertisers. While users are attentively browsing photos and updates from friends, they'll end up consuming ads as well. The ads look so similar to organic news feed stories and are only marked in the bottom right corner - the last place a user's eyes will scan. That means users probably won't notice the difference until they've already internalized an ad's message.
Some users will likely be outraged by the presence of ads in the news feed, as well as by having their content so directly used to make Facebook money. Others may argue that Facebook provides a valuable service to users for free, and is therefore entitled to showing ads where it wants to.
Personally, I'd rather see Sponsored Stories that inform me about the activity of friends than traditional ads that can be much less relevant. However, the rate limit will be crucial to maintaining a high quality user experience. If too many news feed Sponsored Stories are shown a day, the feed could deteriorate into a billboard and users might not be so eager to visit Facebook anymore.
Starting in 2006, Facebook tested allowing advertisers to pay to show sponsored content in the news feed. Facebook discontinued the program in 2008, deciding that advertisers shouldn't be able to pay to show content in the news feed unless it could appear there naturally.
For years, all ads were confined to a small sidebar on the right side of the interface. In January 2011, though, Facebook launched Sponsored Stories. They allow advertisers to pay to turn the news feed stories generated by interactions between users and businesses into ads. These actions can include a user Liking a Page, receiving a news feed update from a Page they already Like, checking in to a local business, sharing content from an external website, or using an application. Below you can see how the Sponsored Stories flow works, and at the bottom of this article is an excerpt from Facebook's guide for advertisers that shows all the ad types.
This fall, Sponsored Stories began appearing in the Ticker, the first time it had mixed ads with social content since 2008. Users didn't actively protest having updates of their friends adulterated with ads, possibly bolstering Facebook's confidence that it could show ads in the main news feed without ruining the user experience. After all, the ads are only showing content that could already appear in the feed.
Starting in January, when advertisers pay for these Sponsored Stories, they'll be eligible to appear in the main news feed in addition to the ads sidebar. By mixing them in with social content on the site's home page they'll be much more noticeable and therefore more valuable to advertisers. The word “Sponsored” will appear in gray in the bottom right of the ad stories. If hovered over, it reads “This was already shared with you. A sponsor paid to feature it here”. Facebook tells me it will also be educating users about how Sponsored Stories work in other ways, such as sidebar ads that link to the Help Center's Sponsored Stories section.
Given that Facebook has roughly 400 million daily users, half of which are on the web, Facebook could boost its daily ad inventory by up to 200 million impressions. This inventory expansion could reduce ad prices, though an increase in advertiser demand for Sponsored Stories could offset this. Facebook hasn't finalized whether advertisers will have the option to specifically request placement in the news feed. Studies have shown sidebar Sponsored Stories have a 46% higher click through rate than traditional ads, and you can expect the CTR of news feed Sponsored Stories to be even higher.
If Facebook can weather the protest of users who want an ad-free news feed, it will have managed to open a significant new revenue stream. The launch of news feed Sponsored Stories could also be a big turning point for online advertising. With prominent placement on one of the world's most visited sites and their appeal to viewers from including the faces and activity of friends, Sponsored Stories news feed ads could help Facebook steal ad spend from paid search and traditional display such as Google AdWords and AdSense.
Update: This article originally stated that Facebook had never shown ads in the news feed before. However, Facebook tested sponsored content in the news feed in 2006 to 2008, as this article now reflects.