November 07, 2011

Facebook And Advertisers

Facebook continues to be an astounding success with the public.

It is not, however, such an astounding success with advertisers.

One of the problems Facebook has is that the free part -- having a Facebook page -- is way more attractive to marketers than the paid part -- advertising.

Unfortunately for Facebook, you make more money selling stuff than giving it away. It's one of those pesky laws of economics.

Ads on Facebook are very close to invisible. According to IT World the click-through rate for Facebook ads is about 5 in 10,000. That is astonishingly low. (According to an unofficial insider at Facebook, the true CTR is 2 in 10,000.)

Recently, Facebook has been crowing about an 18% increase in its CTR. Strangely, their press release neglects to give us the raw numbers. (Yes, that was sarcasm.) An 18% increase from what to what? Here's a tip from an old science teacher -- when someone gives you results in percentages but neglects to give you the raw numbers, they're hiding something.

But let's give Facebook the benefit of the doubt and assume that the "5 in 10,000" number is correct. An 18% increase brings the click through rate all the way up to almost 6 in 10,000. Be still my heart.

While consumers spend about 15% of their online time on Facebook, Facebook is only garnering about 6.4% of online ad dollars. There's something very wrong here.

The numbers for Google, on the other hand, tell a much different story. People spend less than 4% of their online time on Google, but Google attracts (according to my calculations) about 44% of online ad dollars*.

If you were to do an index of ad dollars per unit of time spent, Google is about 25 times more efficient at producing ad revenue than Facebook (also my calculation.)

This is not the only problem Facebook is facing. To a large degree, marketers evaluate the success of their Facebook efforts by "likeonomics" i.e., the number of people who "like" them.

The issue here is that 2/3 of all the "liking" done on Facebook is done by people between 13 and 24 -- in other words, people with no money. Jim Edwards, at CBS MoneyWatch says...
Social media marketing firm Vitrue says youngsters' preponderance can actually hurt a social media campaign's value...
It's the online equivalent of allowing gangs of teens to hang around in the mall... Sure it looks nice and crowded, but it's deterring older shoppers who actually have money to spend.
Additionally, marketers are starting to think more carefully about the value of a "like" -- especially since you can now buy Facebook fans in bulk for 10 cents a pop.

How much is it worth to have a 16-year-old like you? Ask Napster or MySpace.

Or Ask Dippin' Dots...
Dippin' Dots, a quirky ice cream product, is one of the world's top 50 product brands on Facebook. Ranked at #40, with over 4.5 million fans, it ranks higher than mega-brands like Gatorade, Domino's Pizza, Nike Basketball, Snickers and Barbie. Last week Dippin' Dots filed for bankruptcy.

*Web numbers are notoriously unreliable - especially mine. According to a recent chart at Business Insider, Facebook's ad performance is even worse than the numbers I quote. According to this report they have about a 3% share of  online ad revenues while Google has a 46% share. Thanks to Roger Lewis for this.

Thanks to David for some info that helped this post. I don't use last names of people employed at agencies anymore. Last year a reader who contributed info to this blog almost got fired. 

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