Kara Visits Facebook

It’s true I have been bugging Facebook–the Internet company of the moment–about showing me the money, that is to say the secret master plan to turn the popular social-networking site into a cash-gushing business.

Thus, I finally got a sit-down with the Money Guy at Facebook, Media Sales Vice President Mike Murphy.

I had known the affable Murphy (pictured here) only a little bit from his many years at Yahoo, which he left for Facebook in March 2006 in what now looks like a particularly prescient move, given the Internet giant’s recent ad troubles and Facebook’s seemingly high-flying trajectory.

I use the word seemingly, because no one really knows what the record or the prospects of Facebook are exactly when it comes to becoming an ad powerhouse, like Google and, yes, Yahoo, which did more than $1 billion in revenue for the current quarter, as weak as results were.

Here’s a video I made of my visit to Facebook HQ in Palo Alto, Calif., seeking answers to this and other questions from Murphy, as well as a drop-in from COO Owen Van Natta (who mimicked founder Mark Zuckerberg and called me “nasty” on this video, even as he chatted away, which questions his credibility related to my true level of meanness), PR head Brandee Barker and others.

To get a lay of the land, Facebook’s total revenues have been reported to hover around $100 million and it is profitable, execs and investors have told me many times.

I am not sure how much profit that means–and Facebook isn’t saying–due to the growth in staff and bandwidth demands of late.

Murphy, who would not confirm any total figure, told me about half their revenue was due to Facebook’s own ad efforts and the other half to a sweetheart deal the start-up struck with Microsoft to sell its banner ads with a guaranteed revenue payment that has been extended to 2011.

The Microsoft connection–made right after Google forked over $900 million in guarantees to News Corp.’s MySpace, the by-far dominant social network–is a nice padding for the company to have, of course.

But most of Facebook’s future depends on how Murphy and his team can translate its growing popularity and frequency by users into ad sales.

As some who read this blog might know, I often give hats off to founder Zuckerberg and his team for Facebook’s clean, handsome and highly usable service, as well as its growth.

But without other revenue streams like subscription fees, it needs to get its ad business really cooking and fast.

Or perhaps not so fast, according to Murphy and other execs at Facebook, who say building the core service and rolling out better features is the goal for now.

That will give them time to figure out the real options for ad growth on Facebook, including dreaming up a whole new way of marketing, which Murphy calls “return on involvement.”

I like his chutzpah using this term, and I vaguely understand it to mean the ability of a marketer to develop a closer relationship with a customer.

It’s been called at various times “conversational marketing” too, but it is the most credible idea for highly interactive Web sites like Facebook to pitch a new story to advertisers.

In fact, story is one of the ways Facebook is selling ads, allowing marketers to insert them in a targeted way into its powerful newsfeeds of its users, linking back to a marketing site on Facebook. When that happens, it can then go out to that person’s friends and so on and so on and so on.

If the marketer makes a good enough offer or is clever enough, then the impact could indeed be more significant than simply slapping up a banner and hoping for the best. Of course, there are those banners and links, too.

“Banners are great for branding, but this is a more relevant message that leverages social media,” argued Murphy, who said the ad sell is that it produces a cornucopia of “trusted referrals,” which is basically a nice phrase for leads.

How well that works is a big question, and some reports–though few have real proof–indicate that marketers are still on the fence about the effectiveness of this kind of marketing on Facebook.

Murphy bristled at this characterization, noting that it was his job to show marketers that becoming part of the conversation could be as important as much-measured click-through rates.

“It is an exceptionally different experience,” he said. “If we can help you make your idea or product relevant to a consumer and get the best involvement rate … it’s a different game.”

In any case, Murphy thinks the real point for Facebook right now is to build its user experience, which is more important than inundating the service with ads.

“We’re building a consumer experience here … and we’re happy to fund that development,” he said. “A lot of Web companies would love to start all over and try new concepts and not have the expectations about the delivery of revenue.”

Wouldn’t we all, Mike?

Although expectations, as an old pro like Murphy knows, can certainly cut both ways. In fact, they always do.

Please see this disclosure related to me and Google.