Is Facebook Advertising a black hole?

By now people know that Facebook’s IPO was a disaster.  You don’t need me to go into the details, but it can be summarised in one word – overhype.  Morgan Stanley led the offering aggressively, driving stock price up while computer glitches at Nasdaq undermined confidence in that already overpriced stock.  Throw in privacy issues, fake users and the fact that Facebook didn’t seem to have clear objectives for monetisation in place (both in terms of mobile and increased ad integration), and folks, you’ve got yourself a full scale ‘IPO debacle’ (seriously…Google ‘IPO debacle’, it’s nearly all FB).

While there has been some recovery in stock value, even after Facebook’s market value dropped more than $50 billion in 90 days following the IPO, it seems that both publishers and advertisers are still unsure about the prospect of Facebook advertising as a moneymaker. 

However, given that Facebook claims to have 955 million active users and that they made 85% of their $3.7 billion profit from advertising in 2011; the question begging to be asked is what is there to worry about?  Well, let me take a shot at answering that very open-ended and almost infinitely debatable question.

Is there value in Facebook Advertising?

 

There is a clear and easily definable dichotomy when it comes to Facebook advertising:

  1. Facebook Advertising IS NOT valuable

The arguments for the people on this side of the fence focuses on intent.  I’ll put it to you this way – how do you sell water to someone who isn’t thirsty?  Everyone should want water, it keeps us alive, but people will only buy water when they’re thirsty.  If you remove thirst from the equation, you then remove the immediate intent that would cause them to buy that product from you.  This is the dilemma advertisers face on Facebook.  Their demographic might be active, but people don’t go to Facebook to buy, and therefore the intent they have to click ads in minified, if not completely nullified.  I think we all know where people go when they have buying intent – it begins with ‘G’ and rhymes with Dougal.

In short, it doesn’t matter about the volume of users on Facebook that are active and within your demographic, the intent is removed, so ads convert poorly.  However, this could look set to change following the launch of Facebook ad exchange…more on that to come.

  1. Facebook Advertising IS valuable

To those who are saying that there is little value in Facebook advertising because the intent isn’t there, the counter-argument is that as marketers, it is our job to create intent.  As online marketers we should be creating intent for Facebook users through creative, brilliant ads and intelligent marketing.  I don’t want to be confusing mediums here – but think about television advertising.  Companies still plough millions of pounds of their marketing budget into television advertising despite the majority of the audience potentially not having a ‘buying’ intent.  Obviously the inherent benefit of advertising on television is building brand awareness across a mass audience, and this is something comparable to what Facebook ads are able to offer.

Still, huge companies like GM have recently taken the decision to stop advertising on Facebook, which they were doing to the tune of $10 million per year.  While they have had to streamline following their recent bailout crisis and their marketing budget isn’t nearly as substantial as it once was, you’d think that if FB ads worked, then a big brand like GM would be all over it. 

Having said this, it’s important to remember that GM will still be maintaining their content strategy on Facebook, something they reportedly invest $30 million a year in.  Is this where the real value in Facebook lies?

What does the Author think?

As if the 28 people who read this will care, but here’s my two cents on the subject.  However, because I don’t have great personal experience with FB advertising I’m going to sit on the fence, or in the words of Dwight Schrute, I’m going to sleep on the fence – “the trick is to do it face down with the post in your mouth”.

I would feel more inclined to agree with the people who doubt the value of Facebook ads because of the lack of intent that social users have, and the low click through and conversion rates I have seen shared on numerous campaigns.  However, as mentioned above, the recent launch of Facebook Ad Exchange (FBX) does have the potential to change this.  At the time of writing this, it’s only 6 days old (I’ll write a complete FB Ad Exchange ad blog soon) and this has already cause click-through rate to increase 4 fold, and conversion rate to increase 2.2x.  If FBX takes off, it does have huge potential.

My thoughts on social media marketing in general seem to be more closely aligned with that of GM than the FB advertising advocates.  Social is a communication tool, and should be used to engage and interact with customers, not, in my opinion, for direct marketing.  I would be a lot more tempted to replicate GM’s strategy and invest in content for Facebook instead of ads, at least until FBX is adopted by more businesses.

That’s enough from me, what are your thoughts on Facebook Advertising – do you believe there’s value or not?

162 Comments.

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