Can Facebook make its ‘engagement ads’ work?

Forecasts for social-network advertising were already being scaled back long before the credit crisis began dampening ad spending, but Facebook is keeping the torch burning for its new “engagement ad” format. The format, which asks users to interact with an ad and then shares that action with friends, launched back in August. But today throws some cold water on the idea.

While Facebook has claimed 70 of America’s 100 biggest advertisers as clients in the last year, its share of total U.S. online display ad views was only 1.1 percent, against MySpace’s 15.9 percent, noted, before rolling out a procession of skeptics of Facebook’s ad strategy. Forrester researcher Jeremiah Owyang, who has provided some of the best critiques of Facebook ads, calls the site’s offerings “confusing.”

Despite the promise of leveraging social-profile data to create insanely hypertargeted ads, Facebook struggled with its Beacon program to navigate privacy concerns. Now it’s plowing ahead with “social ads,” another type of ad that leverages users’ on-site behavior without direct interaction. As the downturn begins to hit advertising budgets, the social networks hope they can find a format that both leverages the interactivity of their platform and is is compelling enough to get users to click through. If they can’t, they risk being left with nothing to sell but bargain-basement display ads.

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