Facebook cedes equity stake to ad agency and gains advertising dollars

Facebook was rumored to be for sale earlier in the year, with an incredulous $2 billion asking price.

In exchange for $10 million in advertising commitments from the Interpublic Group publicly traded advertising, marketing and public relations firm, and an undisclosed cash payment, Facebook is cedeing 0.5% of its equity to to the ad agency, according to a Red Herring report.

Facebook was rumored to be for sale earlier in the year, with an incredulous $2 billion asking price. While a $10 million, 0.5% equity stake does yield a $2 billion valuation, Facebook is stressing that the deal is not a pure advertising for equity “swap” and that no company valuations should be inferred.

Advertising at Facebook is currently focused on low cost, local advertiser created "Facebook Flyers." Facebook says of its "Facebook Flyers":

Your Flyer will be posted to the Facebook Flyer Board and advertised on other Facebook pages. For only $5, your Flyer will be displayed 2,500 times! At small schools, we will display your Flyer as many times as possible but cannot guarantee the number of views.

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Both Facebook and Interpublic are touting the deal as a way for Interpublic’s clients to “learn about and experiment with the medium—social networks—and the demographic.”

Facebook and other social networking sites, such as MySpace, are hoping to lure advertisers by claiming insider knowledge of the coveted youth market, and unique access to it.

While a day of advertising on the MySpace homepage now costs close to $1 million, MySpace is hoping to raise the value of advertising at the site’s less controlled “friends” profile pages. According to MySpace Marketing VP Shawn Gold, MySpace is appealing to advertiser interest in reaching “real” young people:

Individual pages identify products. Millions of people are defining what they are there, and for young people especially, getting feedback and evolving themselves. Any criticism we get of MySpace is usually about the individual pages being unwieldy or having too much going on on them.

But if you have a problem with MySpace pages, go visit a teenager's room and you'll see the same thing. For advertisers, it's the potential for a level of intimacy that they could never have dreamed of 20 years ago. Brands are going to people and becoming their friends. Entertainment marketers get that and are there on MySpace, but any brand that operates on an entertainment platform could do the same.

SEE ALSO: CHANGE OF FACE AT FACEBOOK

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