SAN FRANCISCO (Reuters) - Hewlett-Packard warned of a worsening outlook for 2013 earnings on Wednesday, reflecting slow progress on CEO Meg Whitman's turnaround plan while technology spending sputters, sending its shares to a nine-year low.
HP, the largest U.S. technology company by revenue, forecast that its earnings will slide sharply next year, compared with Wall Street's expectations for flat profits.
Whitman, at HP's annual presentation to investors, blamed unprecedented executive turnover in past years for dragging out the Silicon Valley company's turnaround. The company's shares plummeted as much as 7 percent.
She said it will take until fiscal 2014 for the company's recovery to start to become visible.
'The big disappointment is stemming from the fact that things are expected to get worse' in fiscal 2013, RBC Capital Markets analyst Amit Daryanani wrote.
'The company intends to revert back to being a growth story. However, in the near term, earnings will get more challenging before they get better.'
HP gave a particularly gloomy outlook for enterprise services, which provides services to corporations and is one of the company's the largest divisions and a key component of Whitman's rescue plan.
Revenue from enterprise services will dive 11 to 13 percent in fiscal 2013 and be barely profitable, with operating margins of 0 to 3 percent, HP said.
The company forecast overall earnings, excluding restructuring charges and other items, at between $3.40 to $3.60 a share in fiscal 2013. That's well below the average forecast by Wall Street analyst of $4.18, according to Thomson Reuters I/B/E/S.
Whitman, who became HP's third CEO in as many years after taking the helm from an abruptly dismissed Leo Apotheker just over one year ago, is trying to revitalize the former industry icon via layoffs, cost cutting, and expansion into areas with longer-term potential such as enterprise computing services.
Longer term, 'we expect to be a GDP-like growth company with key pockets of higher growth,' Cathie Lesjak, HP's chief financial officer, said.
MUSICAL CHAIRS
Apotheker's 11-month tenure was marked by an acceleration of departures from various divisions, such as networking chief Marius Haas, as he brought in former coworkers from SAP AG.
'My belief is that the single biggest challenge facing Hewlett-Packard has been changes in CEOs and executive leadership, which has caused multiple inconsistent strategic choices, and frankly some significant executional miscues,' Whitman told investors at the conference in San Francisco.
'This is important because as a result it is going to take longer to right this ship than any of us would like,' she added.
HP, like rival Dell Inc, is trying to transform itself into a major enterprise computing provider in the mold of IBM Corp, while slashing expenses to boost the bottom line.
The company is laying off 29,000 employees over the next two years and has written off $10.8 billion mostly related to the writedown of its EDS services business. Meantime, its business continues to be hit by a slowing in corporate spending and personal computer demand worldwide.
Whitman vowed to reduce the number of product offerings and to cut costs as HP tries to recover in a worsening macro-economic environment. She has said it will take five years for the turnaround to be effective.
'All of this is fixable but it is going to take some time,' she said.
The company's recovery will start to become visible in fiscal 2014 with all of the current investments paying off, she said.
'FY 15 will be the year of acceleration,' Whitman said. 'Revenues should be growing faster than cost.'
HP's stock was down 7.5 percent at $15.84 in midday trading.
(Reporting By Poornima Gupta and Edwin Chan; Editing by Tim Dobbyn, Andrew Hay and Leslie Adler)
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Wednesday, October 3, 2012
Tuesday, October 2, 2012
HP's profitable printers to buy Whitman time
SAN FRANCISCO (Reuters) - Meg Whitman has a laundry list of things to do at HP: Arrest a rapid decline in its personal computer unit, compete better on enterprise services, and figure out a strategy as mobile devices eat into personal computer sales.
That leaves one still-bright spot in Hewlett-Packard's beaten-up portfolio - printing.
The HP chief executive in past months has punctuated talk about her years-long turnaround plan with sweeping goals such as battling IBM and Dell Inc on corporate services and products, using Silicon Valley buzzwords such as 'cloud' and 'social' and 'big data.' In the short run, however, its printers are buying time for the CEO of one year to turn around the sprawling company with over 300,000 workers.
Whitman on Wednesday will host HP's annual presentation to investors in San Francisco, and Wall Street is keeping one eye on a division that her predecessor once considered spinning off.
Though it has lost some of its shine, the unit still generates close to a fifth of total revenue and 35 percent to 40 percent of HP's annual profit.
Printing is 'not as much a problem as some of the other businesses,' said Shaw Wu, analyst with Sterne Agee. 'It's still a cash-cow business. The profits have declined but they are still very strong.'
Revenue from all of HP's main business units fell in the July quarter, with the PC unit seeing a slide of 10 percent. Operating profit declined by 28 percent in the PC group, the largest slide among HP's divisions, followed by a 22 percent slide in services.
Printing revenue declined 2.7 percent last quarter, but operating profit increased by 8 percent. The group accounted for $949 million of HP's $3.1 billion in operating income that quarter.
Wu is expecting HP's annual printing revenue to decline by about $1 billion to $25 billion this fiscal year, which ends in October.
HP's imaging and printing group has historically been a steady business - with an operating margin of 16 percent last quarter, almost double the company overall - because of recurring sales of printer cartridges.
But the industry is facing some fundamental challenges. Most printer makers are struggling with falling sales: Printing has been a target of corporate cost-cutting, and personal computing has moved to tablets and smartphones.
By dint of the printing unit's sheer scale, any small increase in revenue could have a big impact on HP's bottom line. Whitman is trying to stabilize the printing business and reduce excess inventory. She has merged the group into the ailing personal computer business to better package product sales to corporations.
In August, Lexmark, never a dominant player in consumer printers, said it will stop making inkjet printers and focus on its more profitable imaging and software businesses. The announcement reminded investors about the intense competition, falling margins, and gradual mobile migration the sector is now coping with.
Lexmark reflected a broader pattern of problems in the industry: Xerox Corp cut its full-year profit outlook in July, while Canon trimmed its operating profit forecast as the companies braced for tough economic conditions in Europe.
3D OPPORTUNITY
Now, the Silicon Valley giant needs to make a big move into the fast-growing sector of industrial printing or three-dimensional printing, analysts said.
Three-dimensional printing - a process by which an object or prototype is built from a digital model - is commonly used in the automotive, aerospace and dental industries.
'Companies like HP have to look at where the next big opportunity is,' said Terry Wohlers, president of research firm Wohlers Associates Inc. '3D printing is a good fit.'
The market for 3D printing was at $1.7 billion last year and is expected to reach $2.1 billion this year and grow three-fold to $6.5 billion by 2019, according Wohlers Associates.
'With their strong marketing and distribution muscle, HP is in a very good position to dominate the market, and they could buy up most of the companies in this business if they wanted to because it's a relatively small but fast-growing and vibrant area,' Wohlers said.
HP's thinking on this point is unclear. In August, the company ended its relationship with 3D printer manufacturer Stratasys, which has been making HP's exclusive line of 3D printers since 2010. HP mostly marketed the 3D printers in Europe.
The largest U.S. technology company by revenue is trying to keep its core personal computing business profitable as competition from mobile devices erodes sales. HP is trying to transform itself into a major enterprise computing provider, while slashing expenses to boost the bottom line.
The company is laying off 29,000 employees over the next two years, has written off $10.8 billion that was mostly related to the writedown of its EDS services business, and its business continues to be hit by a slowing economy in most of its biggest regions, including Western Europe and China.
Whitman is expected to provide HP's outlook for the next fiscal year and an update on the company's restructuring plans.
The analyst meeting 'comes at a crucial point in the company's struggle to maintain its relevancy in an increasingly competitive IT industry,' said Topeka Capital Markets analyst Brian White, who expects HP to offer a conservative outlook.
Wall Street analysts on average expect HP's revenue to decline to $120.08 billion in fiscal 2013 from an estimated $121.14 billion this year, according to ThomsonReuters I/B/E/S.
Jefferies analyst Peter Misek said he expects HP's outlook for 2013 to come in well below Wall Street estimates given 'cyclical and secular headwinds for HP's PC, services, and printer businesses.'
(Reporting by Poornima Gupta; Editing by Prudence Crowther and Ryan Woo)
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That leaves one still-bright spot in Hewlett-Packard's beaten-up portfolio - printing.
The HP chief executive in past months has punctuated talk about her years-long turnaround plan with sweeping goals such as battling IBM and Dell Inc on corporate services and products, using Silicon Valley buzzwords such as 'cloud' and 'social' and 'big data.' In the short run, however, its printers are buying time for the CEO of one year to turn around the sprawling company with over 300,000 workers.
Whitman on Wednesday will host HP's annual presentation to investors in San Francisco, and Wall Street is keeping one eye on a division that her predecessor once considered spinning off.
Though it has lost some of its shine, the unit still generates close to a fifth of total revenue and 35 percent to 40 percent of HP's annual profit.
Printing is 'not as much a problem as some of the other businesses,' said Shaw Wu, analyst with Sterne Agee. 'It's still a cash-cow business. The profits have declined but they are still very strong.'
Revenue from all of HP's main business units fell in the July quarter, with the PC unit seeing a slide of 10 percent. Operating profit declined by 28 percent in the PC group, the largest slide among HP's divisions, followed by a 22 percent slide in services.
Printing revenue declined 2.7 percent last quarter, but operating profit increased by 8 percent. The group accounted for $949 million of HP's $3.1 billion in operating income that quarter.
Wu is expecting HP's annual printing revenue to decline by about $1 billion to $25 billion this fiscal year, which ends in October.
HP's imaging and printing group has historically been a steady business - with an operating margin of 16 percent last quarter, almost double the company overall - because of recurring sales of printer cartridges.
But the industry is facing some fundamental challenges. Most printer makers are struggling with falling sales: Printing has been a target of corporate cost-cutting, and personal computing has moved to tablets and smartphones.
By dint of the printing unit's sheer scale, any small increase in revenue could have a big impact on HP's bottom line. Whitman is trying to stabilize the printing business and reduce excess inventory. She has merged the group into the ailing personal computer business to better package product sales to corporations.
In August, Lexmark, never a dominant player in consumer printers, said it will stop making inkjet printers and focus on its more profitable imaging and software businesses. The announcement reminded investors about the intense competition, falling margins, and gradual mobile migration the sector is now coping with.
Lexmark reflected a broader pattern of problems in the industry: Xerox Corp cut its full-year profit outlook in July, while Canon trimmed its operating profit forecast as the companies braced for tough economic conditions in Europe.
3D OPPORTUNITY
Now, the Silicon Valley giant needs to make a big move into the fast-growing sector of industrial printing or three-dimensional printing, analysts said.
Three-dimensional printing - a process by which an object or prototype is built from a digital model - is commonly used in the automotive, aerospace and dental industries.
'Companies like HP have to look at where the next big opportunity is,' said Terry Wohlers, president of research firm Wohlers Associates Inc. '3D printing is a good fit.'
The market for 3D printing was at $1.7 billion last year and is expected to reach $2.1 billion this year and grow three-fold to $6.5 billion by 2019, according Wohlers Associates.
'With their strong marketing and distribution muscle, HP is in a very good position to dominate the market, and they could buy up most of the companies in this business if they wanted to because it's a relatively small but fast-growing and vibrant area,' Wohlers said.
HP's thinking on this point is unclear. In August, the company ended its relationship with 3D printer manufacturer Stratasys, which has been making HP's exclusive line of 3D printers since 2010. HP mostly marketed the 3D printers in Europe.
The largest U.S. technology company by revenue is trying to keep its core personal computing business profitable as competition from mobile devices erodes sales. HP is trying to transform itself into a major enterprise computing provider, while slashing expenses to boost the bottom line.
The company is laying off 29,000 employees over the next two years, has written off $10.8 billion that was mostly related to the writedown of its EDS services business, and its business continues to be hit by a slowing economy in most of its biggest regions, including Western Europe and China.
Whitman is expected to provide HP's outlook for the next fiscal year and an update on the company's restructuring plans.
The analyst meeting 'comes at a crucial point in the company's struggle to maintain its relevancy in an increasingly competitive IT industry,' said Topeka Capital Markets analyst Brian White, who expects HP to offer a conservative outlook.
Wall Street analysts on average expect HP's revenue to decline to $120.08 billion in fiscal 2013 from an estimated $121.14 billion this year, according to ThomsonReuters I/B/E/S.
Jefferies analyst Peter Misek said he expects HP's outlook for 2013 to come in well below Wall Street estimates given 'cyclical and secular headwinds for HP's PC, services, and printer businesses.'
(Reporting by Poornima Gupta; Editing by Prudence Crowther and Ryan Woo)
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Monday, October 1, 2012
Samsung allowed to sell Galaxy Tab in U.S. as court lifts ban
(Reuters) - A U.S. court removed a temporary sales ban against Samsung Electronics Co Ltd's Galaxy Tab 10.1 won by Apple Inc in a patent dispute, allowing the South Korean company to sell the product in the United States.
While the Galaxy 10.1 is an older model, the lifting of the ban could still help Samsung in the run-up to the pivotal holiday shopping season.
'We are pleased with the court's action today, which vindicates our position that there was no infringement of Apple's design patent and that an injunction was not called for,' Samsung said in a statement.
Separately, Samsung filed a motion against Apple saying the iPhone 5 had infringed on some of the company's patents.
The world's top two smartphone makers are locked in patent disputes in 10 countries as they vie to dominate the lucrative market.
The legal fight began last year when Apple sued Samsung in multiple countries, and Samsung countersued.
The injunction on the Galaxy tablet had been put in place ahead of a month-long trial that pitted the iPhone maker against Samsung in a closely watched legal battle that ended in August with a victory for Apple on many of its patent violation claims.
However, the jury found that Samsung had not violated the patent that was the basis for the tablet injunction and Samsung argued the sales ban should be lifted.
The sole basis for the preliminary injunction no longer exists since the jury found that Samsung's Galaxy Tab had not violated Apple's D'889 patent.
'The court does not agree with Apple that Samsung's motion for dissolution of the June 26 preliminary injunction cannot be fairly decided without resolving Apple's post-trial motions,' Judge Lucy Koh said in her ruling.
Apple could not immediately be reached for comment outside regular U.S. business hours.
The case in U.S. District Court, Northern District of California, is Apple Inc v. Samsung Electronics Co Ltd et al, No. 11-1846.
(Reporting by Sakthi Prasad; additional reporting by Miyoung Kim in Seoul and Sruthi Ramakrishnan in Bangalore; Editing by Chris Gallagher and Ryan Woo)
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While the Galaxy 10.1 is an older model, the lifting of the ban could still help Samsung in the run-up to the pivotal holiday shopping season.
'We are pleased with the court's action today, which vindicates our position that there was no infringement of Apple's design patent and that an injunction was not called for,' Samsung said in a statement.
Separately, Samsung filed a motion against Apple saying the iPhone 5 had infringed on some of the company's patents.
The world's top two smartphone makers are locked in patent disputes in 10 countries as they vie to dominate the lucrative market.
The legal fight began last year when Apple sued Samsung in multiple countries, and Samsung countersued.
The injunction on the Galaxy tablet had been put in place ahead of a month-long trial that pitted the iPhone maker against Samsung in a closely watched legal battle that ended in August with a victory for Apple on many of its patent violation claims.
However, the jury found that Samsung had not violated the patent that was the basis for the tablet injunction and Samsung argued the sales ban should be lifted.
The sole basis for the preliminary injunction no longer exists since the jury found that Samsung's Galaxy Tab had not violated Apple's D'889 patent.
'The court does not agree with Apple that Samsung's motion for dissolution of the June 26 preliminary injunction cannot be fairly decided without resolving Apple's post-trial motions,' Judge Lucy Koh said in her ruling.
Apple could not immediately be reached for comment outside regular U.S. business hours.
The case in U.S. District Court, Northern District of California, is Apple Inc v. Samsung Electronics Co Ltd et al, No. 11-1846.
(Reporting by Sakthi Prasad; additional reporting by Miyoung Kim in Seoul and Sruthi Ramakrishnan in Bangalore; Editing by Chris Gallagher and Ryan Woo)
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White House targeted in cyber attack
WASHINGTON (Reuters) - The White House's computer system was targeted in a cyber attack, a senior administration official said on Monday, but no classified systems were breached.
There is no evidence that data was taken in the incident, the official said, adding that the attack was identified early and did not spread.
The attack was described as 'spear phishing,' the term for an attempted penetration using fake emails from a trusted sender, which the official said was 'not infrequent.'
On Sunday, a report from a news website 'Freebeacon,' that describes itself as an alternative to 'the professional left,' said that Chinese hackers had breached a White House military system.
The White House would not identify the group responsible for the attack, or give specifics about its timing and target.
China has the world's largest Internet user base, at 485 million users, and is believed to be responsible for a number of hacking attacks aimed at the U.S. government and companies.
'In this instance the attack was identified, the system was isolated, and there is no indication whatsoever' that any data was extracted, the official said.
'Moreover, there was never any impact or attempted breach of any classified system.'
The Obama administration is preparing to issue an executive order that would direct federal agencies to develop new guidelines to shield computer networks from cyber attacks. The White House undertook the new rules after Congress failed earlier this year to pass a comprehensive cybersecurity bill.
(Reporting By Margaret Chadbourn; Editing by Sandra Maler)
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There is no evidence that data was taken in the incident, the official said, adding that the attack was identified early and did not spread.
The attack was described as 'spear phishing,' the term for an attempted penetration using fake emails from a trusted sender, which the official said was 'not infrequent.'
On Sunday, a report from a news website 'Freebeacon,' that describes itself as an alternative to 'the professional left,' said that Chinese hackers had breached a White House military system.
The White House would not identify the group responsible for the attack, or give specifics about its timing and target.
China has the world's largest Internet user base, at 485 million users, and is believed to be responsible for a number of hacking attacks aimed at the U.S. government and companies.
'In this instance the attack was identified, the system was isolated, and there is no indication whatsoever' that any data was extracted, the official said.
'Moreover, there was never any impact or attempted breach of any classified system.'
The Obama administration is preparing to issue an executive order that would direct federal agencies to develop new guidelines to shield computer networks from cyber attacks. The White House undertook the new rules after Congress failed earlier this year to pass a comprehensive cybersecurity bill.
(Reporting By Margaret Chadbourn; Editing by Sandra Maler)
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Medvedev points Facebook's Zuckerberg towards Russian IT sector
GORKI, Russia (Reuters) - Prime minister Dmitry Medvedev told Facebook chief executive Mark Zuckerberg on Monday that Russia's IT industry was as promising an area for investment as its natural resources sectors.
'You probably know that here in Russia we have not only oil, gas, gold and diamonds - there is also an IT industry,' a smiling Medvedev told Zuckerberg.
Communication Minister Nikolai Nikoforov, who also attended the meeting, said a plan for a Facebook research centre in Russia was discussed.
Russian IT firms such as Internet search engine Yandex, which launched its own browser on Monday, and anti-virus software maker Kaspersky Lab have become global success stories.
Zuckerberg wrote on his Facebook page that the conversation with Medvedev in his country residence outside Moscow had been 'good' and posted a photo of himself in front of St. Basil's Cathedral on Red Square.
Sources told Reuters that Zuckerberg would not meet Russia's richest man, Alisher Usmanov, who invested heavily in Facebook in 2009 and this year made $1 billion selling his shares.
Zuckerberg, who was making his first visit to Russia after a programmer there won Facebook's Hacker Cup competition, gave Medvedev a T-shirt with a print of his Facebook address.
iPad-toting Medvedev and his entourage of young IT-savvy officials make a stark contrast with President Vladimir Putin's inner circle of former KGB spies who do not have accounts on social networks and shy away from modern gadgets.
Research published last week by former Kremlin official Konstantin Kostin said five of the 20 most popular websites in Russia, including Facebook, had U.S. owners and their share was growing, which posed a threat to national security.
Medvedev's spokeswoman Natalya Timakova said Zuckerberg, who wore a black suit and tie for the meeting, told the prime minister that when he created Facebook with his university friends he did not think it could influence politics.
(Reporting by Gleb Bryanski and Darya Korsunskaya; Editing by Robert Woodward)
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'You probably know that here in Russia we have not only oil, gas, gold and diamonds - there is also an IT industry,' a smiling Medvedev told Zuckerberg.
Communication Minister Nikolai Nikoforov, who also attended the meeting, said a plan for a Facebook research centre in Russia was discussed.
Russian IT firms such as Internet search engine Yandex, which launched its own browser on Monday, and anti-virus software maker Kaspersky Lab have become global success stories.
Zuckerberg wrote on his Facebook page that the conversation with Medvedev in his country residence outside Moscow had been 'good' and posted a photo of himself in front of St. Basil's Cathedral on Red Square.
Sources told Reuters that Zuckerberg would not meet Russia's richest man, Alisher Usmanov, who invested heavily in Facebook in 2009 and this year made $1 billion selling his shares.
Zuckerberg, who was making his first visit to Russia after a programmer there won Facebook's Hacker Cup competition, gave Medvedev a T-shirt with a print of his Facebook address.
iPad-toting Medvedev and his entourage of young IT-savvy officials make a stark contrast with President Vladimir Putin's inner circle of former KGB spies who do not have accounts on social networks and shy away from modern gadgets.
Research published last week by former Kremlin official Konstantin Kostin said five of the 20 most popular websites in Russia, including Facebook, had U.S. owners and their share was growing, which posed a threat to national security.
Medvedev's spokeswoman Natalya Timakova said Zuckerberg, who wore a black suit and tie for the meeting, told the prime minister that when he created Facebook with his university friends he did not think it could influence politics.
(Reporting by Gleb Bryanski and Darya Korsunskaya; Editing by Robert Woodward)
This news article is brought to you by FREE ROMANTIC DATING SITE BLOG - where latest news are our top priority.
Microsoft launching news operation, new MSN
SEATTLE (Reuters) - Microsoft Corp is launching its own news operation as part of its new-look MSN website when Windows 8 launches later this month.
The world's largest software company is making a 'big, multi-million dollar investment' to create a 'decent-sized media operation,' said Bob Visse, general manager, MSN Product Management Group.
Microsoft sold its 50 percent stake in news website MSNBC.com in July to longtime partner NBCUniversal, now majority-owned by Comcast Corp.
MSNBC's newsroom at Microsoft's campus in Redmond, Washington is being wound down, while MSN builds up a news team at its nearby Bellevue offices.
MSN will chiefly aggregate news from sources such as Reuters, a unit of Thomson Reuters Corp, the Associated Press and NBC, but it will also produce its own content, Visse said. He did not say how many journalists the news site would employ.
Microsoft's flagship website, which gets about 480 million visitors per month worldwide, is one of the biggest portals on the Internet, alongside Yahoo and AOL, and serves as the gateway to other Microsoft online services such as Outlook mail and Skype online calling.
The site is being radically overhauled for Microsoft's touch-optimized Windows 8 system and Internet Explorer 10, which will be launched on October 26. The new look is designed to appeal to tablet and touch-screen PC users, who can manipulate large icons across the screen and tap on items they want to read.
For the first time, the site will have a uniform look across all its sections, from news and sports to money and job listings.
Microsoft's foray into news reflects the company's growing interest in creating its own content. Last month it hired a former CBS Corp executive to run a new studio creating original entertainment for the Xbox gaming console.
(Reporting By Bill Rigby; editing by Carol Bishopric)
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The world's largest software company is making a 'big, multi-million dollar investment' to create a 'decent-sized media operation,' said Bob Visse, general manager, MSN Product Management Group.
Microsoft sold its 50 percent stake in news website MSNBC.com in July to longtime partner NBCUniversal, now majority-owned by Comcast Corp.
MSNBC's newsroom at Microsoft's campus in Redmond, Washington is being wound down, while MSN builds up a news team at its nearby Bellevue offices.
MSN will chiefly aggregate news from sources such as Reuters, a unit of Thomson Reuters Corp, the Associated Press and NBC, but it will also produce its own content, Visse said. He did not say how many journalists the news site would employ.
Microsoft's flagship website, which gets about 480 million visitors per month worldwide, is one of the biggest portals on the Internet, alongside Yahoo and AOL, and serves as the gateway to other Microsoft online services such as Outlook mail and Skype online calling.
The site is being radically overhauled for Microsoft's touch-optimized Windows 8 system and Internet Explorer 10, which will be launched on October 26. The new look is designed to appeal to tablet and touch-screen PC users, who can manipulate large icons across the screen and tap on items they want to read.
For the first time, the site will have a uniform look across all its sections, from news and sports to money and job listings.
Microsoft's foray into news reflects the company's growing interest in creating its own content. Last month it hired a former CBS Corp executive to run a new studio creating original entertainment for the Xbox gaming console.
(Reporting By Bill Rigby; editing by Carol Bishopric)
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Facebook's new pitch to brand advertisers: forget about clicks
SAN FRANCISCO (Reuters) - Facebook Inc, stung by doubts that advertising on the social network delivers enough bang for the buck, is preparing to unveil data to counter its critics and show that 'clicks,' the current metric of choice, tell only half the story.
The world's No. 1 social network, embarrassed just days before its IPO when General Motors declared it was pulling the plug on all paid advertising on its network, will argue that big-brand marketers should abandon the industry's obsession with numbers of clicks and focus on more effective advertising techniques.
Fewer than 1 percent of in-store sales tied to brand advertising campaigns on Facebook come from people who clicked on an ad, according to a new study that Facebook has conducted through a partnership with Datalogix, a data mining firm that tracks real world retail sales.
'We ended up in this world where the click is king,' said Brad Smallwood, Facebook's head of measurement and insights, who will present some of Facebook's findings at one of the advertising industry's biggest conferences in New York on Monday.
While designing online ads to garner clicks makes sense for certain type of companies - such as e-commerce firms trying to ring-up immediate online sales - clicks are not relevant to brand marketers, Smallwood said.
Through its partnership with Datalogix, Facebook says it can now give brand marketers data on the actual in-store sales that their ad campaigns on Facebook have generated - a more useful piece of feedback than total clicks. Datalogix tracks the relationship between ads on Facebook and real-world spending by compiling consumer purchasing information from retail stores and matching it with data about Facebook ad impressions.
Facebook's push to provide marketers with more feedback comes as the company's revenue growth slows and the effectiveness of its ads remains a hotly debated topic. Facebook, whose stock by the end of the third quarter was down 43 percent since its May initial public offering, has unveiled a variety of new advertising capabilities in recent months, including its first ads designed to be viewed on smartpthones.
'Advertisers have been increasingly vocal about concerns regarding effectiveness of Facebook,' said Pivotal Research Group analyst Brian Wieser.
Clicks became a metric of choice in part because they had become directly tied to Google Inc's performance. The world's No. 1 Web search engine offers an effective and easy-to-measure form of advertising because it lets marketers reach consumers at the moment they are searching for a particular product.
If a consumer clicks on the search ad, the job is done.
But Facebook argues that for brand advertisers, fine-tuning the number of times a particular consumer sees an ad as well as ensuring that the ad has reached all of its target audience are far more effective techniques.
According to Smallwood, marketers can increase the return on investment from their ads by 40 percent by focusing on an ad's so-called frequency - instead of one Facebook user seeing an ad 100 times and another user seeing the ad only twice, for example, Facebook says it will soon offer advertisers' insight on the ideal number of ad impressions for a particular campaign.
'Using the Datalogix tool, we'll able to understand what that sweetspot is,' Smallwood said, adding that Facebook will then control how often each user sees the ad.
Many large brand advertising campaigns are not even hitting half of their target audience, according to Smallwood. But ad campaigns that focus on getting the optimal reach are 88 percent more effective at improving their return on investment, Facebook says its studies have shown.
Getting online advertisers to break their long-running focus on clicks will not be easy, but Facebook says the techniques it is advocating are standard in the television advertising world.
As Facebook strives to convince marketers to think differently, the company also has to assuage privacy concerns.
Facebook's partnership with Datalogix has raised complaints from some privacy advocates, who say the social networking company could be violating the terms of a privacy settlement with the U.S. Federal Trade Commission by not obtaining the express consent from users to share their personal information.
Smallwood said that the only information given to Datalogix is that people were exposed to certain marketing messages, adding that Facebook is not receiving any personal consumer information from Datalogix.
(Reporting By Alexei Oreskovic)
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The world's No. 1 social network, embarrassed just days before its IPO when General Motors declared it was pulling the plug on all paid advertising on its network, will argue that big-brand marketers should abandon the industry's obsession with numbers of clicks and focus on more effective advertising techniques.
Fewer than 1 percent of in-store sales tied to brand advertising campaigns on Facebook come from people who clicked on an ad, according to a new study that Facebook has conducted through a partnership with Datalogix, a data mining firm that tracks real world retail sales.
'We ended up in this world where the click is king,' said Brad Smallwood, Facebook's head of measurement and insights, who will present some of Facebook's findings at one of the advertising industry's biggest conferences in New York on Monday.
While designing online ads to garner clicks makes sense for certain type of companies - such as e-commerce firms trying to ring-up immediate online sales - clicks are not relevant to brand marketers, Smallwood said.
Through its partnership with Datalogix, Facebook says it can now give brand marketers data on the actual in-store sales that their ad campaigns on Facebook have generated - a more useful piece of feedback than total clicks. Datalogix tracks the relationship between ads on Facebook and real-world spending by compiling consumer purchasing information from retail stores and matching it with data about Facebook ad impressions.
Facebook's push to provide marketers with more feedback comes as the company's revenue growth slows and the effectiveness of its ads remains a hotly debated topic. Facebook, whose stock by the end of the third quarter was down 43 percent since its May initial public offering, has unveiled a variety of new advertising capabilities in recent months, including its first ads designed to be viewed on smartpthones.
'Advertisers have been increasingly vocal about concerns regarding effectiveness of Facebook,' said Pivotal Research Group analyst Brian Wieser.
Clicks became a metric of choice in part because they had become directly tied to Google Inc's performance. The world's No. 1 Web search engine offers an effective and easy-to-measure form of advertising because it lets marketers reach consumers at the moment they are searching for a particular product.
If a consumer clicks on the search ad, the job is done.
But Facebook argues that for brand advertisers, fine-tuning the number of times a particular consumer sees an ad as well as ensuring that the ad has reached all of its target audience are far more effective techniques.
According to Smallwood, marketers can increase the return on investment from their ads by 40 percent by focusing on an ad's so-called frequency - instead of one Facebook user seeing an ad 100 times and another user seeing the ad only twice, for example, Facebook says it will soon offer advertisers' insight on the ideal number of ad impressions for a particular campaign.
'Using the Datalogix tool, we'll able to understand what that sweetspot is,' Smallwood said, adding that Facebook will then control how often each user sees the ad.
Many large brand advertising campaigns are not even hitting half of their target audience, according to Smallwood. But ad campaigns that focus on getting the optimal reach are 88 percent more effective at improving their return on investment, Facebook says its studies have shown.
Getting online advertisers to break their long-running focus on clicks will not be easy, but Facebook says the techniques it is advocating are standard in the television advertising world.
As Facebook strives to convince marketers to think differently, the company also has to assuage privacy concerns.
Facebook's partnership with Datalogix has raised complaints from some privacy advocates, who say the social networking company could be violating the terms of a privacy settlement with the U.S. Federal Trade Commission by not obtaining the express consent from users to share their personal information.
Smallwood said that the only information given to Datalogix is that people were exposed to certain marketing messages, adding that Facebook is not receiving any personal consumer information from Datalogix.
(Reporting By Alexei Oreskovic)
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