Why Is Facebook Advertising So Misunderstood?

22 Feb

Image representing Facebook as depicted in Cru...

Image via CrunchBase

Our Facebook report, which was released last week stirred up some common myths about Facebook advertising.

Facebook ad performance is abysmal compared to other display or pay-per-click ads

CTRs may be relatively low, but what should really matter to you is your goal. If you are a direct marketer, you’re probably looking at conversions and cost per conversion.  If your metric is lead gen, then you might look at emails collected or new fans.  If you’re a brand, consider reach, engagement, and earned media. Consider that a single prominent leaderboard or LREC ad in display may get a multiple of the CTR for a text ad below the fold of a page. More ads on one page mean fewer opportunities for any one ad to get the click. Facebook has increased the number of ads per page to where there are now up to 5 ads per pageview vs only 3 before (not counting the homepage premium ads).  We’d argue that the growth in ad units per page has more than outpaced an apparent decline in CTR.

Targeting and depth of relationship makes comparisons apples-to-oranges

We described how friend of fan ads (those with social impressions) can often garner twice the click-through rate. The same is true in the non-Facebook world for retargeting (showing ads to people who have been to your site) and branded search (people who are actually navigating vs searching). In fact, you may even compare the spectrum of a Facebook ad’s performance to its older brother— email. Spam email (unwanted commercial contact) gets horrible open and click rates, while messages to a well-kept house list can get 40% opens and 50% clicks to open rates.  In Facebook, a super targeted ad to your existing fans is more like and email than an ad— it’s wanted messaging that is helpful, personalized, and informative.

Advertisers aren’t yet armed with the proper tools and training

If leveraging social context is the key to great CTR as well as conversion, then the larger the social graph, the easier it is to get a friend-of-fan connection. The network effect applies. But we are just at the beginning stage of Facebook advertising, as most brands are not targeting or using the power of endorsements. A simple way to prove this— the cost of super targeted traffic is often the same as untargeted 18+ traffic, which is the default.  Facebook will eventually morph into an efficient ecosystem where each niche is priced accordingly, based on market value. Right now, you can get gold at the price of sand.

Market competition is starting to drive the price up

Yogi Berra once said when asked why he didn’t go to a popular restaurant “Nobody goes there anymore. It’s too crowded.” Demand on Facebook is outstripping the massive increase in supply.  Considering that average display prices are $2-5 CPMs, a 30 cent CPM on Facebook for traffic that can be better targeted is as great deal at any metric applied. To reiterate the Google growth curve against what Facebook is about to experience, the 5 cent clicks in 2002 on AdWords are now 50 cents. And with smarter advertisers on Facebook, this same curve will apply. Get it while the traffic is cheap.

The entire store is on sale

No, Facebook doesn’t compensate us to say this, nor is this a blind frenzy. Rather, the cost to build your brand’s fan base or revenues is at a significant discount now, for example, as shown by Rosetta Stoneand Virgin Mobile Qatar.  As more metrics-based case studies come forward, especially those that show the offline impact of online efforts, the “ultraviolet” layer of influence, also called “word of mouth”, becomes measurable.

Until attribution is in place, Facebook marketing is educated guesswork

We know that marketing channels work in tandem to influence each other. The question is how much credit to allocate to an “assist”. The world of marketing measurement is nearly exclusively last click— the last click a user has gets 100% credit, while the other touchpoints along the way get zero credit. The disproportionate credit goes often to search, robbing the fact that you have a strong brand, a good product, significant word of mouth marketing, and social efforts. When these channels are properly weighted, we predict that ad rates will significantly increase.

Are there other myths or misconceptions you’ve heard? Or other questions that you’re interested in getting to the bottom of? Leave us a comment and we’ll get you the answers or join us in one of ourupcoming Facebook webinars.

Leave a comment

Posted by on February 22, 2011 in Facebook


Tags: , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: