Inside Facebook: it's a small world

London is the marketing powerhouse of the world's biggest social networking site, but is it going to be able to come up with the kind of advertising and expansion that the mothership in Palo Alto is looking for?

by James Taylor
Last Updated: 09 Oct 2013

It is hard to believe when you arrive at Facebook's London office that this is the European base of 'the company of our time' - the US phenomenon that in six years has attracted 600 million users, and a possible valuation of $100bn. On the third floor of an unglamorous building, between two noisy pubs a stone's throw from the boutiques of Carnaby Street, Facebook's 70 (ish) UK staff are crammed into an unremarkable office that could belong to any SME in the capital.

The person tasked by Facebook with building out its presence in Europe, the Middle East and Africa is vice president Joanna Shields, the former Google exec who used to run social networking website Bebo (before selling it to AOL for a preposterous amount of money). A technology industry veteran, she is nigh on evangelical about her latest employer. 'This is the most interesting company I have ever worked for, in terms of its potential to change the world,' she enthuses to MT. 'Brands have the opportunity not only to deliver a message to a mass consumer audience, but also to have that message amplified... It is like the early days of TV - it's a transformational marketing platform.'

The vast majority of Facebook's 2,000 staff are based at its HQ in Palo Alto, California. This is where most of the development work behind the site takes place, so the engineers rule the roost, zooming around on their Segways and playing speed-chess in their lunch breaks. The London office, by contrast, is essentially a sales and marketing operation: the job of Shields and her team is to work out how to monetise and sell Facebook's products and features on this side of the Atlantic. With 70% of its users now outside the US, international markets are clearly a big deal for Facebook; COO Sheryl Sandberg popped by in May on her way to the eG8 in Paris and founder Mark Zuckerberg himself came for a visit last year (he went to Facebook's Dublin office on his way to the eG8). But it's still a relatively small European outpost of a big US company. Is that hard for the former Bebo CEO, MT wonders? Is her strategy dictated from afar? Not at all, says Shields. 'We have some very serious goals - in terms of revenue, user targets and so on - and we have to execute these goals regionally. But how we get there is up to us.'

There's no doubting the opportunity here. Facebook has some 30 million users in the UK alone; on average, users spend seven hours a month on the site, and around half visit every single day. Since that means it's attracting an audience as large as the biggest shows on television on a daily basis, every consumer-facing business in this country has a pretty good incentive to get involved with Facebook.

You may be thinking that 70 people doesn't sound like a lot to service a potential demand such as that. After all, some branches of McDonald's have more staff. It's true that the UK operation is growing fast - head count is up around 50% in the last year and it's still hiring. But, according to Shields, Facebook has no interest in growth for growth's sake; in fact, it's determined to keep staff members as low as possible, in order to be as agile as possible. So how can it do that, while getting to the kind of revenue and user levels that would justify that exorbitant price $100bn tag?

In the UK, Facebook makes most of its revenue from advertising (though it also rakes in income from the monetisation of virtual goods, and, in the US, from local deals). But it isn't just flogging bog-standard display ads. 'It's all about putting people at the heart of your marketing,' says UK MD Stephen Haines. 'Our question to clients is: can your marketing strategy be made social?' In other words, it's not enough just to set up a Facebook page, or stick a Facebook URL in the last frame of your 30-second TV commercial; it's all about greater engagement with your consumers. Facebook's pitch to potential clients is that marketing messages are much more powerful if they're endorsed by your friends - about twice as powerful, in fact, according to research by Nielsen.

With a story like this, selling Facebook can't be the toughest gig in the world. Indeed, says Haines, his team's job tends to be less about sales and more about education - particularly when it comes to the old-school marketers who've been relying on TV ads for the past 30 years. But they're learning fast: he cites the example of BT, a less-than-sexy brand that had huge success with a Facebook campaign encouraging users to vote on the content of its next TV ad (a surprising number of sad cases cared what wedding dress Jane wore). Indeed, even the basic Facebook ads tend to encourage user interaction - whether that's by 'Liking' something, voting or commenting on it, or adding events to your calendar.

Contrary to some predictions, Facebook's introduction of ads in the right-hand column hasn't scared the punters away - partly because they're so unobtrusive. But the flipside of this, advertisers complain, is that click-through rates tend to be pretty low. Facebook would argue that this is an old-fashioned way of looking at it; that advertisers need to think in terms of other metrics, such as engagement. But it is clearly determined to make its ads more insidious, as evidenced by its latest wheeze, 'Sponsored Stories'. The big idea is that when you 'Like' something, it appears as a status update in your friends' news feeds - so you effectively provide an unpaid but influential endorsement. Haines reckons a big brand with 500,000 fans on its page can easily get its message out to some 20 million people this way. Equally, because Facebook has so much information about us, including our likes and dislikes, advertisers can easily target very specific groups: if you want to get your ad to 24-year-old men who live in Ipswich, enjoy fine dining and read the Daily Mail (if indeed there are any), you can do.

But Facebook's aspirations go way beyond this. 'We say to marketers: don't just think about Facebook in terms of ads; look at other things you can do to build relationships with your consumers,' says Haines. This might mean building a community through its Facebook page to promote or test new products. It might even mean selling products or content directly using Facebook credits (this has been dubbed f-commerce, and it's an area Haines thinks will explode in the next 18 months).

Or, significantly, it might not even involve at all. The role of international business development director Christian Hernandez - who is based in London but works across EMEA - is to sign partnership deals with companies that are keen on social (currently the focus is on the media, commerce and gaming sectors). The idea is that Facebook will then open up its platform to approved third party developers, who can integrate its social technology into these companies' sites. For example, a media company might promote content that your friends have liked, or a travel business might filter its results according to your friends' recommendations. In other words, Facebook wants to be part of your experience, wherever you are on the web. It wants to be thought of not just as a website, but, in Hernandez's words, as 'a platform company that permeates the web'.

This partnership model is the key to understanding how Facebook intends to get big in EMEA while staying small (Hernandez still only has about 20 staff across the region). The theory is that because most of the development work is done by third parties, Hernandez and co can do one deal and move straight onto the next. It's the same with advertisers; since they can create and target their own ads, Facebook doesn't have to do it for them - it just sells them the space and lets them get on with it. Facebook hopes to become, as Shields puts it, 'a highly leveraged organisation' - it keeps developing the platform and selling the benefits to partners, but all the nitty-gritty of integration is done by agencies.

But if platform deals do prove to be a big growth area for Facebook in Europe, as it clearly thinks they will, this could cause problems. Some of these deals need engineering input - and Facebook doesn't have many engineers on this side of the pond. We spoke to one of the few based here, Simon Cross, who told us he spends his time in three main areas: advising clients on best practice, helping out if external sites need some coding at the Facebook end to integrate properly, and building apps to demo new features, usually in conjunction with launch partners. So there is clearly a limit to how many clients he can work with at once - which sounds like it could be a bottleneck on growth.

Shields insists that she wants to stay small, because it allows the business to 'turn on a dime' and focus on the very best opportunities. Adds Hernandez: 'In a big company, you get a certain management overhead and a level of bureaucracy, so there's less accountability and ownership. Here it is very clearly defined who owns what.' It's true that when resources are stretched, it forces staff to prioritise better. But it brings its own risks, too. For one thing, as Shields accepts, it asks an awful lot of her staff. 'People need to be operating at the very highest level of their game all the time. That kind of intensity and pace is hard to sustain. It does worry me that people are going to fall down.' Clearly, both she and Hernandez thrive on this high-growth start-up phase. But others may not; we got the impression that (as with many start-ups) work/life balance is a foreign concept in this office.

More significantly, though, will this philosophy result in Facebook missing out on opportunities? There's clearly no shortage of interest from potential clients right across the EMEA region. So if Shields hired another 50 people tomorrow, wouldn't she be able to grow the business much faster? 'There is a tension there,' she admits. 'There's so much opportunity - sometimes it feels like we're not moving fast enough, or building our teams fast enough... You want to grow and add people at exactly the right time, but you can never get it perfect.'

Another potential worry is whether a small number of staff can deal with the various nuances across such a broad and varied region. Shields argues that there aren't as many differences as you might think - thanks to Facebook itself. 'Facebook is changing the way people interact with one another across all cultures. We're seeing the same types of behaviour in every country - people are becoming more open and transparent, and sharing more. So we don't actually see a huge number of cultural differences.' But Hernandez tells a slightly different story: he thinks that southern Europeans tend to be a bit more open than northern Europeans, for example. We suspect those of you who are still reluctant to 'Like' anything on Facebook will not find this hard to believe.

Of course, Facebook's views on social mores, specifically privacy, have already got it into trouble - hardly surprising, since founder Mark Zuckerberg has said that the expectation of privacy is no longer a 'social norm'. When MT raised the issue, it prompted an impassioned defence - the gist being that Facebook has never sold any data, and gives people more control over their privacy settings than any other site. That may be true. But critics counter that Facebook has sometimes been too eager to make more stuff public by default, or has failed to inform users of new features (most recently the auto-tagging of people in photos, which as security expert Graham Cluley of Sophos points out, could result in Facebook having the world's biggest database of faces linked to names).

Facebook argues that users must take some responsibility; it reports proudly that 'more than 50% of people' adjusted their privacy settings after the overhaul last year. But the other way of looking at it is that a majority of users felt Facebook's new default setting was inappropriate. It wouldn't be the first time, if so. (Incidentally, Facebook wouldn't specify exactly how many people it employs in the UK, or confirm that it's about to move to a bigger office - despite the fact its current home is clearly bursting at the seams - or talk about the work it's currently doing with the Government. So its Zuckerbergian commitment to openness and transparency doesn't appear to apply universally.)

Facebook may be right that our expectation of privacy will continue to erode, that sharing intimate details of our lives with hundreds or even thousands of people on the web will become commonplace. It doesn't seem very British, somehow. But norms do change; remember the days when caller ID on phones was hugely controversial? And as brands get more involved with Facebook, providing users with more interesting stuff to do, it does seem likely that interaction levels will increase.

Facebook will certainly hope so, because the success of its advertising model depends on our willingness to share content and make recommendations. Rumours abound that it will choose to float in the next year or so, following the wave of recent tech IPOs. Some of the sky-high valuations being bandied about might seem ridiculous; after all, plenty of other wildly popular social networking sites have suddenly gone out of fashion, like MySpace and Friendster. But if it's making lots of money from advertising and partnerships, at a time when marketers are pouring more of their budgets into digital; if it's still growing its vast user base around the world and harvesting more data about them; and if it succeeds in spreading its tentacles around the web to all sorts of other sites, it may yet turn out to be worthy of the hype. Facebook may be keen to stay small in terms of headcount, but it's thinking big.

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