Facebook fails as an ad company, although it generates the majority of revenue from advertising. The technology has not kept pace with explosive user growth, falling short in ad-targeting options and formats, according to analyses released Tuesday.
WordStream compared the format and ad performance of ads running on Facebook and Google Display Network. In a report card, Facebook received the following grades:
- Advertisnig Reach/Revenue Growth - A+ and A-, respectively.
- Advertising Performance - B+ for "good effort,"
- Ad-Targeting Options - C
- Ad Formats - D+
Google received the following grades for the same items:
- Advertisnig Reach/Revenue Growth - A+ and A, respectively.
- Advertising Performance - A
- Ad-Targeting Options - B
- Ad Formats - A
It cost Facebook more than $1 billion last year to deliver ads, when factoring in engineers, technology and more, according to a Facebook video.
More than half of Facebook users -- 901 million monthly as of March 31 -- access the social site through a mobile device. The social site estimates more than 500 million mobile monthly active users as of April 20 -- yet no mobile ad-targeting options exist, according to Larry Kim, founder of WordStream, a search engine marketing firm. He said.
"The site also lacks engaging ad formats critical to driving relevance, experience and click-through rates, such as animation or video ads."
The industry average for click-through rates on banner ads stands at one-tenth of a percent. On Facebook, that average stands at half of the industry average, while the Google Display Network generates four times the amount. Larry Kim, founder of WordsStream said.
"CTRs measure relevancy, so if you have good targeting options and engaging ad formats, you would expect more people to click on ads."
The average Facebook user spends 20 minutes per day on the site, but for the company to flourish as an ad platform to generate revenue it must keep better pace with the growth of technology. Forrester Research analyst Nate Elliott believes
In a U.S. Securities and Exchange Commission filing updated on May 9, Facebook explains that the "substantial majority" of its revenue comes from third parties advertising on Facebook.
"In 2009, 2010, and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87%, and 82%, respectively."
Worldwide advertising revenue at Facebook should reach $5.06 billion this year -- up from $3.15 billion, according to eMarketer. The research firm said Facebook's share of overall U.S. display ad market revenue grew to 14% in 2011, up from 11.5% in 2010.
Facebook's share of the U.S. display market ad revenue should grow to 16.8%. By comparison, Google's share of U.S. display ad revenue should reach 16.5% in 2012, up from 13.8% last year.
While Facebook generates the majority of its revenue from ads, it lacks the ability to retarget ads on desktops and mobile devices, which would improve return on investments for brands. The open social network also does not provide integration to target ads across the Internet.
Kim believes Facebook has a lot of work to do before it can sustain revenue growth from online advertising. He highlights that work in the following infographic by WordStream.
It remains to be seen, based on Zuckerberg's comments to shareholders about not initially designing the social network as a company, if they even want to become an advertising company at all, he said.
COMMENTARY: From the above infographic comparing Facebook vs Google, you can clearly see why Facebook is a failure as an advertising platform. Facebook's CTR's are scary. Google's aren't that much better.
If you are not familiar with how Facebook's advertising works you should read About Facebook Advertising for general information, including what personal information (if any) Facebook provides advertisers about you, the difference between regular ads and sponsored stories, and Facebooks online ad creation tool.
Perhaps the biggest change to Facebook ads is the announcement at the end of February 2012, that classic premium ads (including premium like. premium event, video comment and premium poll) would no longer be available, but replaced by new upgraded premium ads.
The new upgraded premium ads will originate from Facebook Pages. In other words, advertising on Facebook will take place in the newsfeed and the line between paid, owned, and earned become virtually unrecognizable.
Why is this a big deal? At least two reasons… As a user, ads will be unavoidable because they will be in the news feed as opposed to exclusively in the sidebar (right margin). As an advertiser, the new Facebook ads work better… Facebook reports better reach, engagement, etc.
New upgraded premium ads The ad is created by the content that you post Page post. Anything that you post on your Page, you can turn into an ad.
New upgraded premium ads will allow advertisers to choose from six kinds of page posts:
- Status updates or text
Facebook makes the following claims to advertisers using the new upgraded premium ads:
- Target Anyone - Upgraded premium ads can be targeted to anyone you want. All available targeting options can be used.
- More Social For Friends of Fans - When the person seeing your had has friends who are fans of your Page, Facebook will automatically expand the ad with enhanced social context about those friends, at no extra cost to you.
- More Engagement Points for Fans - When fans see your ad, they'll see an expanded interface below the ad that lets them like or comment on the post directly from the ad.
New upgraded premium ads come in the following sizes depending on your news feed content:
- Photos - Up to 90 characters of text, 168 x 128 pixel thumbnail, 43 aspect ratio.
- Videos - Up to 90 characters of text, 185 x 104 pixel thumbnail, 16:9 aspect ratio.
- Questions (Polls) - Will show exactly 4 answers, or 3 plus a "see more" link.
- Status - Up to 150 characters of text, No additional media.
- Event - Up to 90 characters of text, 75 x 75 pixel thumbnail.
- Link - Up to 90 characters of text, 75 x 75 pixel thumbnail.
New upgraded premium ads come with certain pluses, minuses and limitations:
- Reporting & Metrics - You receive the same Facebook reporting options as you do now with Classic Premium Ads (Ads and Sponsored Stories). You can see the same metrics for these ads as before.
- Third Party Tracking - Facebook only allows impression tags for premium. Facebook does not allow click tags for Premium Page Post Ads at this time.
- Creative Delivery - The Facebook ad team will provide advertisers with specific instructions based on your needs for each campaign.
- Reaching Non-Fans - New premium upgrade ads will allow you to reach non-fans. Ads and featured stories from Page posts allow you to reach anyone, just like with any ad. This means you can target any segment of the Facebook user base, including fans, non-fans and any other targeting clusters desired. Facebook also provides the option to omit your ads from being viewed by your fans within your news feed, but can be viewed only by non-fans in their news feeds.
Additional information on how to create an ad or sponsored story on Facebook can be found by clicking HERE, but don't bitch if the ads don't produce results.
Facebook has also received recent criticism for failing to produce a social commerce environ-ment. In a blog post dated February 27, 2012, I reported that The Gap, Nordstroms and Penneys had abruptly closed their F-commerce sites after only just a few months due to lack of interest or a quantifiable ROI. In the commentary section of that blog post, I provide a huge body of evidence (links) that concluded that Facebook stores don’t work. Furthermore, Facebook’s ad platform is expensive and doesn’t convert.
Courtesy of an article dated May 15, 2012 appearing in MediaPost Publications Online Media Daily