January 30, 2014

Are Facebook Ads Worth The Investment?

facebook-advertisingIn 2012, Facebook went public and the consequences were catastrophic for stockholders. After only two weeks $50 billion dollars worth of shareholder equity was lost, as many Facebook insiders sold their stock.  Many of the key executives at Facebook thought that it would be more strategic to get out, before Facebook lost any more value. This nosedive had many people wondering whether or not this was the end for Mark Zuckerberg’s Facebook.

Now in 2014, Facebook has fully recovered and is in a full a upswing from it’s dramatic plummet two years ago. It took some clever re-organizing but now it appears as if Facebook is once again a thriving publicly traded company. Despite it’s near death in 2012, Facebook has been able to maintain many of their large advertising contracts. However when we critically examine the route cause of Facebook’s near demise, it raises some interesting questions about the value of advertising on Facebook.

Only days after Facebook went public it suffered another major blow when the auto giant GM pulled their Facebook ads. After marketing research read that they had “little impact on consumer car purchases”. Shortly afterwards Joel Ewanick GM’s executive of advertising left the company and they have recently resumed their Facebook advertising.

The moral of the story here is that major corporations like GM aren’t really sure how to respond to Facebook as a marketing tool. Due to the fact that Social Media Marketing has not yet been proven by statistic research to improve sales. Even though, these companies have hopped on the Facebook bandwagon, it is really hard to measure whether or not advertising investment in Facebook actually works.

In theory, Facebook suggests that advertising on it’s site is beneficial because people are more inclined to act upon recommendations from their friends rather than directly from the companies themselves. The sharing and promoting feature on Facebook is what makes it appealing as a advertising medium but this type of marketing is hard to meter with traditional conversion methods.

While this was all happening in 2012 a study was conducted by ComScore (a marketing research firm) to determine whether or Facebook was working as an effective marketing tool for large corporations. They looked directly at Facebook’s own analytic platforms and other data to investigate Facebook users habits in regards to marketing, below are a list of their findings.

reach of Facebook ads

So, are Facebook ads worth it? Lets take a closer look…

1. Facebook Ads Work In Theory

On Facebook, there are several different kinds of ads but certain ones work better then others. According to ComScore’s researchers “Facebook ads can absolutely drive sales, but there isn’t enough data to generalize that yet”. It is hard to say whether or not Facebook ads work definitively or if the peaks in sales are relative to Facebook as a consumer trend. ComScore experts go on to state that there are many variables affecting the data. “Facebook is a completely new platform” they say, “There are many unique characteristics that need to be looked at critically over the next few years”

Basically, even now in 2014, there is just not enough data to say for sure whether or not Facebook ads work. When you look at passed marketing trends on websites like Yahoo and AOL, there was a steady peak and then a dramatic decline in marketing success once the websites declined in popularity.

2. Facebook Does Increase Exposure

The same 2012 study looked at both online and offline purchases of Facebook users during the Christmas season. They looked at people who were fans and friends of popular shopping destinations including Walt-mart and Target. The comScore researchers examined the behaviors and spending of Facebook users when compared to non-Facebook users.

They were not surprised to find that “fans” of the retailers spent more money at these stores then the non Facebook users. The study was also able to find evidence that supported findings that said large percentages of the Facebook fans, friends also shopped at these stores as well. Confirming the original thesis that Facebook does in fact influence the buying habits of consumers. This could however be reduced to the fact that Facebook fans and regularly were exposed to sales media from these websites that influenced their likelihood to buy.

3. Paid Media is Not As Effective As Earned Media

Other online campaigns can be measured by their success as “paid advertising” by counting the number of clicks per posting. What this means is if the ad appears 1000 times, how many times does a user respond to the ad on a single web page? Regular online advertising companies charge per 1000 impressions (also referred to as CPM). It is known for a fact that the Facebook platform receives far fewer clicks per 1k impression because people on Facebook tend to ignore the paid advertisements that appear on their page.

Facebook newsfeed items that appear when a product or service is already liked are much more effective in comparison to ads. Users can choose what kind of content appears in their newsfeed by liking content that is relevant to them. They can also customize their feed by blocking content that they do not want to see. The concept, of the newsfeed is simple enough- what makes it different is that the customer chooses what media messages they wish to be exposed to.

In many ways this is the real differentiating characteristic of Facebook versus traditional online advertising. Marketers, aren’t quite sure what to make of this medium quite yet because they are not accustomed to this sort of user regulated exposure.

4. Viral Marketing is The Key

In order for Facebook to become be a worthwhile marketing investment, the marketers must find a way to take advantage of the user base. Proudly boasting over 1 billions users Facebook is certainly a force to reckoned with when judging sheer size. That said, finding a way to appeal to a large audience on Facebook can be tricky.

What every advertiser on Facebook is trying to do is get the attention of their fans and their fans friends. They can’t do this without the help of the consumer. Likes, feeding multiple likes as the message spreads throughout the website. This is great for businesses who have already identified their target demographic and are serving their needs appropriately. However, emerging business struggle to get viral traction because they are relatively unknown.

This is also frustrating because viral behavior is relatively unpredictable even by experts. You never know when something is going to take off and go viral. It is hard to develop a good campaign for this platform.

What we do know is that great minds think alike, and friends of fans can be expected to make a purchase or promote a campaign than by random selection alone through amplification theories.

“The idea behind amplification is that Fans who are reached with brand messages can also serve as a conduit for brand exposure to Friends within their respective social networks… Due to factors like Fan Reach, the average brand message from the Top 1,000 brands on Facebook is able to deliver an actual amplification of 81x if their efforts are maximized. In practice, while organic virality at times falls short of this ideal scenario, brands are often able to double the reach of their Page Posts through Friends of Fans.” Sam Gustin, Time.com

5. Only Time Will Tell

With all of these factors taken into consideration the question still remains: Are Facebook Advertisements A Worthwhile Investment? It is still hard to answer yes or no. In the two years since these studies were conducted not too much has changed in regards to Facebook’s overall advertising system. Across the board, companies both large and small have benefited from being present on Facebook. However, it is still difficult to calculate whether or not Facebook participation is helping these companies make money, let along returns on their ad investments.

What Facebook is proven to do very effectively is increase brand loyalty and exposure. It also is a fantastic platform for market research and consumer outreach.

Overall, one could say that Facebook’s future looks promising. Even if people are not clicking on the ads directly the website has been effective in other areas of marketing and promotion. Then there is the real hard truth, it is absolutely too early in Facebook’s lifeline to make the call. There is still potential for growth in the ad department. With over 1 billion users Facebook has become a massive worldwide success. Thanks to the beauty of viral sharing and amplification it continues to grow at an unprecedented rate.

If you’re looking for a digital marketing agency why not give Flow20 a try? We can help you with PPC management, Facebook ads, LinkedIn Advertising and Social Media campaigns and even Google Ads training.

About Shirish Agarwal

Shirish Agarwal is the founder of Flow20 and looks after the PPC and SEO side of things. Shirish also regularly contributes to leading digital marketing publications such as Hubspot, SEMRush, Wordstream and Outbrain. Connect with him on LinkedIn.