Last April, the BuzzFeed website posted "11 Things No One Wants To See You Instagram," a snarky reminder to resist the temptation to share online photos of your lunch or toes.

Over the next few weeks, the post drew 2,000 Facebook FB -2.90% "likes" and about 330,000 views. But most of those views weren't on BuzzFeed's home page. Instead, they were from people sharing the post on social-media sites like Facebook and Twitter.

Stories go viral every day. But what made the post unusual is that it was an ad for Virgin Mobile, which was promoting more entertainment for sharing on the Virgin Mobile Live website.

Aimed at enhancing Virgin Mobile's brand, the so-called sponsored story was an example of a new breed of online marketing that takes advantage of people's tendency to share online content with their friends.

Executives at BuzzFeed Inc., which has expanded over the past year from posting cute animal photos to breaking campaign news, are betting that sharing could be a big part of online marketing's future. In its brightly painted New York headquarters, decorated with the "LOL" and "OMG" lingo of the Internet culture, a team led by Huffington Post co-founder Jonah Peretti is building a business around helping advertisers craft messages that people will share with their friends.

"There's a basic intuitive premise that the research is proving, which is that when you hear about a product because a friend shared something with you, that is more meaningful than if you see a paid ad," says Mr. Peretti, BuzzFeed's chief executive.

The Power of the Personal

In the case of the Virgin Mobile ad, people who saw the post through a friend's recommendation were 24% more likely to view the cellphone-service provider positively than people who hadn't seen a recommendation, according to Vizu, a market-research company affiliated with Nielsen.

While most ads don't go quite as "viral" as Virgin Mobile's Instagram post, BuzzFeed says that ads on its site get an average of 40% additional views from people sharing them on social media and that readers are between 10 and 20 times more likely to click on them than on an average banner ad.

Sponsored online content, which blurs some of the traditional boundaries between advertising and editorial, isn't new. Gawker Media introduced sponsored posts in 2009 in the stream of its regular blog posts. Forbes.com and Huffington Post also have introduced similar advertorials.

Facebook Inc. recently introduced its own form of social advertising, also called sponsored stories, which show up on a user's Facebook page if a friend "liked" an advertiser's brand. Facebook Chief Operating Officer Sheryl Sandberg called sponsored stories the "cornerstone" of Facebook's advertising strategy.

But the sharing of sponsored content is the centerpiece of BuzzFeed's business model. Mr. Peretti is so sure about the premise that he has dispensed with traditional banner advertising entirely.

BuzzFeed's pitch to advertisers is that its sponsored stories have a leg up amid the vast social-media landscape because it has technology that allows the company to cater content to the topics are going viral at a given moment.

The ads that a creative team of 15 people at BuzzFeed develop look like regular BuzzFeed posts, mostly lists of photos with sarcastic captions that tap into Internet chatter. The difference is that the sponsored posts are tinted yellow, marked with a small advertiser logo, and the jokes subtly weave in the values of the brand.

Virgin Mobile thinks the approach is ideal. "We are not trying to route people to our content websites," says Ron Faris, the head of brand marketing for Virgin Mobile USA LP. "We want to own the water coolers. And Buzzfeed is probably the biggest water cooler that exists right now."

To be sure, such ads have a tiny share of online advertising. Banner advertising is on track to bring in $8.68 billion in the U.S. this year, according to eMarketer, while the kind of sponsorships that BuzzFeed sells are forecast to bring in $1.56 billion. But banner ads' market share is expected to shrink to 22.6% from 23.3% of U.S. digital-ad spending this year, while sponsorships' share is expected to grow to 4.5% from 4.2%.

Randall Rothenberg, the president and CEO of the Interactive Advertising Bureau, questions how much growth the category can sustain. He says the kind of custom advertising that BuzzFeed does can't achieve the efficiencies of scale that the standardized formats of banner ads can. "If you are a publisher, you can create a fantastic business out of 'native advertising,' " which runs seamlessly within your site's content, he says. "But not the kind of business that you are likely to be able to take public at a valuation that is likely to please venture capitalists."

Revenue Grows

BuzzFeed President Jon Steinberg says developing effective social advertising will become more important as Web traffic increasingly goes mobile. The right column of a website that is typically reserved for banner ads disappears on a mobile device, so putting ads in online conversations becomes crucial, he says. "Social advertising is going to eat display advertising," he says, adding that BuzzFeed's ads cost roughly the same as a premium display ad.

BuzzFeed says it is on track to triple its revenue this year, and that its staff has grown to around 150 from 26 at the start of last year. Much of the staff growth has been powered by $15.5 million in third-round financing led by New Enterprise Associates in January. But Mr. Peretti says ad revenue recently began to finance more growth than the venture funding. Traffic doubled to 10 million unique visitors in August from a year earlier. Advertisers include Toyota Motor Corp., 7203.TO -1.90% General Electric Co. GE -0.84% and PepsiCo Inc. PEP -1.15%

BuzzFeed also has been strengthening its ties to Facebook. In September, BuzzFeed hired former Facebook communication designer Jeff Greenspan to be creative chief. The company also acquired Kingfish Labs, a start-up that gathers Facebook data. And when Facebook wanted to try a new ad format, it tapped BuzzFeed as part of a select group to test it, Facebook says.

"We are very complementary companies," Mr. Peretti says. "They own the railroad tracks, we drive the trains."

On BuzzFeed, advertising IS content:

http://pandawhale.com/post/17218/on-buzzfeed-advertising-is-content

BuzzFeed is brilliant and unique.

For more, look in my BuzzFeed stash.

"the sharing of sponsored content is the centerpiece of BuzzFeed's business model. Mr. Peretti is so sure about the premise that he has dispensed with traditional banner advertising entirely."

Websites still use banner ads?