I wrote a post the other day about how, after talking to loads of Facebook advertisers, the social networking giant appeared to be morphing into a threat to paid search giant Google (GOOG). I recently had a long chat with Facebook's Director of Monetization Tim Kendall. He's one of the key guys in charge of upping the Palo Alto, California-based company's revenues by shaking more marketing dollars out of brands and companies seeking to advertise on the platform. We talked about advertiser behavior, what Facebook has changed in its ad offerings and other topics. Here is a lightly edited transcript:

DailyFinance: Something has changed. I talked to dozens of companies that said they upped their Facebook advertising spend recently and plan on spending more. What did you guys do the advertising tools?

Tim Kendal: Each week, we were adding new features that made it easier for advertisers to order their ads and see the value that their ads were creating for them in terms of bringing more customers to their site or to their Facebook page -- or wherever they want to push their traffic to. The solution that we launched in November 2007 is fundamentally the same one we have today.But we've added some targeting dimensions. And we have invested a lot in growing awareness in the industry. I think people are trialing us more in broader circles. We have heard that something changed overnight. If I were to show you our advertiser counts, and revenues and plotted over time, there is no step change. There is a nice steady increasing curve. That said, we have seen in the past 12 months the number of advertisers on the platform more than triple. That really signals to the growth.

DailyFinance: How do you think Facebook ads as a platform is impacting the marketing segment?

Tim Kendall: You are seeing an increasing number of people who are finding that for their service or their product, Facebook creates a lot of value as compared to the other marketing channels they are working with. That sounds sort of canned, but it's true. One of the things we like to talk about is the classic marketing funnel. At the top, people invest branding dollars in things like TV. Those are the commercials that make you feel good or associate with the brand, but you don't go out 10 minutes later and buy Nike shoes.

Further down the funnel, you might be compelled to look up a sporting goods store and then go and buy the product. In the online world, we view the funnel as having two distinct pieces. The upper piece is demand generation where demand is created, in places like Facebook. When I look up something in the print Yellow Pages, it's already in my mind. The analogy online is paid search. If I want to buy a digital camera, I search for digital camera on Google. Of if I don't want to buy it, I'm pretty close.

Where we think we play very well is in demand generation. Think about all the customers who are out there for a given business but aren't searching for a product or service. In the past, the only ways to reach them online was through contextual display ads or behavioral targeting on display ad networks. With our targeting, you can extend that demand generation and make it more accurately targeted.

DailyFinance: I think that what is happening on Facebook is the demand funnel is collapsing into one stage. Branding and fulfillment are becoming the same thing. A company can run your pay-per-click ads on people with specific profile attributes and on the same screen also run display ads or interactive campaigns with free samples and what not. This has not really been possible before, has it?

Tim Kendall: I think there is some truth to that and we've seen some internal data on this that supports your argument. But when you invest in demand generation campaigns in display, it increases the number of demand fulfillment opportunities in the world, which makes sense. If see a Nike ad and then go searching for Nike shoes on Bing, I am expanding the opportunity pie.

DailyFinance: Except that old model you are referring to is missing a key metric, and that's engagement. Lots of brands and companies advertising on Facebook told me they like it because people spend more time with their brands, because they make it an explicitly interactive experience in a safe setting?

Tim Kendall: We have a very unique opportunity to engage them about a product or a service for an extended period of time. That happens to be a very efficient marketing process.

DailyFinance: One thing I have heard as a knock against you is that Google offers more total impression opportunities?

Tim Kendall: It's not that simple. A classic example I go back to is tents. If you go to Google and you get how many searches are done on Google for tents on a month, it is around 140,000. That means I have a finite set of opportunities to sell tents via paid search on Google. The same thing is true on Facebook -- we only have so many people who call themselves tent lovers in their profiles.

But we do have 2.5 million people who are interested in backpacking or the wilderness or hiking or other things like that. They are not as far down the funnel as people searching for tents, but there are an order of magnitude more of them and they are spending an order of magnitude of time with us than they ever spend searching in Google.

Also, the quality of our targeting is very high. If I am selling New York Giants baseball caps to people who say in their profile that they like the New York Giants, it's a very, very efficient way to sell and get to my target customer and a whole new set of customers that I could not get to through search.

DailyFinance: One thing that really surprised me is that a good number of people I spoke with said they were launching campaigns only on Facebook and skipping Google entirely?

Tim Kendall: We have heard of people who are launching via Facebook and their exclusive online spend is via Facebook. One example is a photographer who we love to use as a reference case. She targets people who are engaged to be married. They put it in their Facebook profiles. There is a nice finite period of time during which the are engaged. People like photographers and other levels of service providers can target people in that life stage by very specifically targeting people who are engaged on Facebook between the age of 25 and 35. The marketing slogan that we use is 'find your customers before they search.'

DailyFinance: Users, however, say your analytics are not as good as what they get with Google?

Tim Kendall: Our guiding principle is we are always trying to make the data around the performance of their ads as transparent as possible. We continue to adapt a lot in analytics development. In almost every part of the product, there are possibilities for improvement. You will see more of that from us in the coming months.

DailyFinance: Would you partner with an Omniture or another analytics specialist?

Tim Kendall: There are key pieces of value that we need to provide advertisers. And we are constantly evaluating how we provide that value. Partnerships are always an option for that. But we have built everything to date in house. One might have made the argument, why are you building your own ad server? Why not use one of those? You are seeing historically a bias towards homegrown. But it's clear we are constantly trying.

DailyFinance: Customers also said your tools are easy to use but really bad for running automated, sophisticated campaigns?

Tim Kendall: That is core to what we are focusing on right now. We have already started to make some automation tools generally available. And you will see more of those in the future. It's a natural extension of what we do today. Part of what you heard is its hard to create lots of lines within their campaigns. We now we have to provide those tools and they are in process.

Daily Finance: Anything out there that you see make you worried or nervous?

Tim Kendall: We are trying to solve marketers problems. Whenever we see innovation from anyone out there who is doing it well, that makes use nervous. It's not specific to Google, for sure. When you look at how rapidly paid search was able to pull spend out of offline fulfillment marketing as a category, it's astonishing. The online fulfillment marketing sector went from nothing to $50 billion very quickly. That was because Google and Overture and others did a phenomenal job of measuring and closing the feedback loop.

It was much clearer to me what I, as an advertiser, got by spending $300 on Adwords than the same amount on the Yellow Pages. For each dollar I put into paid search, I knew exactly what I got for it. Dollars have not moved nearly as fast in the demand generation part of the funnel. Innovation around tight feedback loops is what we are focused on but that market is still wide open and has lots of room for innovation.

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