Everybody wants to be liked. The question for Facebook Inc. is how much advertisers are willing to pay for the opportunity.
The centerpiece of Ford Motor Co.'s online campaign for the 2012 Focus was a free Facebook page hosted by an orange-colored puppet that in a few weeks won over a new, younger audience for the once-stodgy compact.
Ford spokespuppet "Doug" drew crowds to online conversations and videos that starred him clowning around the new Focus. Doug inspired more than 43,000 Facebook users to click "Like," the icon that broadcasts to friends a thumbs-up approval of a brand or product.
While Ford shelled out an estimated $95 million to advertise the new Focus across a broad range of media, it spent just pennies on the dollar for Facebook ads.
Only 21% of Facebook's ads are from Top 100 advertisers. Ford budged $95 million to advertise the Ford Focus, but only spent $10.2 million in online ads. Kantar Media forecasts that Facebook will do $2.89 billion in ads.
Facebook's estimated market value, now in the neighborhood of $70 billion, is founded on the belief that companies will spend big to advertise on the site. Facebook's revenues, which come largely from ads, were $1.6 billion in the first half of this year, up $800 million from a year earlier.
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But most of its ads were for small advertisers, such as local businesses and small-scale websites, according to comScore Inc. Facebook is under pressure to grow its advertising on a grand scale, and to snag the sort of big brand names who now drive billions of dollars to TV, radio and print campaigns.
Doug's ad campaign shows Facebook's uphill battle. It mirrors the experience of other brands—including Progressive insurance, Intel and Pepto-Bismol—that chased customers to online social networks. After some experimenting, the companies found they could reach a target audience at a steep discount through what's akin to word-of-mouth campaigns that spring from free Facebook pages.
Such big online ad buyers as Ford, Verizon Communications Inc., Progressive Corp. and Scottrade Inc., ran less than 15% of their digital ads on Facebook in August and September, according to the first-ever tally of Facebook advertising by comScore Inc.
U.S. consumers spent 15% of their online time at Facebook in September, according to comScore. But Facebook is expected to capture just 6.4% of total online ad spending this year, according to estimates by research firm eMarketer Inc.
David Fischer, vice president of advertising and global operations for Facebook, said the company was witnessing "very strong adoption, growth and business results among the largest brands in the world."
Ford is among those brands. But paid advertising was just a small part of the car company's plan when Doug was born. Meeting at its headquarters in January, Ford asked its ad agency, WPP PLC's Team Detroit, to create a humor-driven promotion. Someone pulled an orange puppet from under the table and said,
"Meet the new Ford Focus spokespuppet."
Scott Kelly, Ford's head of digital marketing, recalled his reaction:
"'Are you kidding? I either am going to get a promotion or get fired.'"
The agency's pitch: Ford needed to get the attention of Facebook users with something they'd pass on to friends.
Despite some reservations—the human-resources department, for one, feared it would offend customers with occasional off-color dialogue but decided the puppet was neither human nor an employee—Ford gave Doug the green light.
In February, before the campaign went live, Ford invited ad-sales teams from Facebook, Yahoo, Microsoft, Automobile Magazine and other media companies to suggest ideas to help promote Doug.
Ford is very excited about its all-new 2012 Focus. On March 21, 2011, Ford announced a major advertising campaign, and the automaker hired a spokesperson to travel the country and talk all-things Focus. By 'spokesperson,' Ford is going in a very weird direction because they enlisted the help of a puppet... named Doug.
Weeks earlier, Facebook had unveiled a service letting advertisers pay to re-publish Facebook messages that users had posted about their brands. Facebook told Ford these so-called sponsored stories would guarantee more people saw favorable posts about Doug and the Focus. Ford declined.
Klout gives users of Facebook, Twitter and other social networks a score based on their online influence. WSJ's Andy Jordan looks at how the score is calculated, what it means for getting freebies, and why the score is so valuable to advertisers.
In March, Ford switched on Doug's Facebook page without any Facebook ads. Doug wrote in his first post.
"Hello, fellow socialites. I'm here to share photos, videos, chat with you, tell you everything you want to know about the all-new Focus."
Executives watched Doug attract followers, who started sharing Doug's wise-cracking videos. About three weeks later, Ford bought ads on Yahoo's email log-in page. It paid Microsoft and Automobile Magazine to sponsor videos and articles about Doug. The ads pointed to Doug's Facebook page.
Ford also started buying Facebook ads introducing Doug and urging users to "Like" him. When Doug hit 10,000 fans, Ford stopped buying. The company kept buying ads on other sites, Mr. Kelly said, but there was no reason to continue paying Facebook after Doug went viral.
Ford spent more than $95 million buying ads promoting the Focus in the first half of the year on TV, print and other media, according to WPP's ad tracking firm, Kantar Media. The auto maker declined to comment on Kantar's spending figure, but said it spent less than 5% of its total online ad budget for the campaign on Facebook to make Doug a well-liked attraction.
They got some good bang for the buck. Of Doug's Facebook fans, 61% said they were more likely to consider buying a Focus, Mr. Kelly said, adding,
"We weren't going to be able to break through the crowd just by doing a Super Bowl ad."
Sales of the Focus were up this year compared with last, he said, and dealers were having a hard time keeping them in stock.
Companies are shifting marketing efforts to Facebook because that is where consumers are. In September, U.S. Web users spent an average 6.8 hours on Facebook, far more than on any other site, comScore said.
Facebook says 96 of the top 100 U.S. advertisers, as ranked by Ad Age, bought ads on its site in the past year. Of the world's 100 largest companies, 61% have a presence on the seven-year-old company, up from 54% last year, according to Burson-Marsteller.
But many of the largest advertisers say their spending is small compared with other sites and make up a small fraction of their total ad budgets. Facebook's global revenues in the first half of 2011 were "not as robust as I would have expected," said eMarketer analyst Debra Aho Williamson.
Facebook will take in less than one-fifth the ad revenues per U.S. user that Google Inc. will this year, eMarketer predicts. EMarketer expects Facebook's ad revenues to reach $2 billion in the U.S., from 162 million unique U.S. users, according to comScore; Google is expected to earn $12.8 billion in U.S. ad revenues from 184.6 million unique U.S. users, according to comScore.
Ben Schachter, an Internet analyst with Macquarie Securities said.
"Clearly people think they can do a lot more than what they are doing today."
Facebook's pitch to companies is that advertising on the site builds brand awareness, along with a more personal relationship with customers. The company's strategy has been to lure marketers with free offerings—fan pages and the "Like" button—then sell ads to help drive viewers to the material they post. Mr. Fischer said the most successful Facebook campaigns combine free content with paid ads.
Whether that will be enough to support Facebook's lofty valuations remains to be seen. Sean Corcoran, an analyst with Forrester Research Inc. said.
"There's most definitely a little bit of the shiny object syndrome happening now with investors. The potential is really huge. But it is going to take a great deal of investment by the marketing community to get the advertising to that point."
Martin Sorrell, CEO of the giant ad holding company WPP, is among those skeptical about Facebook's ability to incorporate conventional advertising into the personal conversations that draw the network's massive audience. He said Facebook works for brand building, but companies that use traditional advertising "are invading a social space. You have to be extremely careful."
Social networks are different from Google's search engine, which sells ads linked to customer queries—many times when people are looking to buy. While Google advertisers can compare sales per advertising dollar, Facebook has teamed up in recent months with the media company Nielsen to experiment with new measures.
Ad executives say spending money on online content often is more important than buying ads. Ford declined to give exact figures but said 49 online videos of Doug cost about the same to produce as three 30-second TV commercials.
Ford recruited Paul Feig, a director of the TV comedy "The Office," along with a writer from "The Simpsons" TV show, to produce Doug's videos. Two people at Ford's ad agency responded day and night to Facebook posts in the persona of Doug. In April, for example, a Facebook user named Laurie asked, "Is Doug single??" Two minutes later, Doug responded, "Is the sky blue, Laurie?"
The spokespuppet campaign is an example of "Likeonomics," a term coined by Rohit Bhargava, a senior vice president with WPP agency Ogilvy, for the practice of brands using social media to create an affinity with customers who share the sentiment with friends.
In April, PepsiCo's Frito-Lay division bragged it had acquired the Guinness World Record for the "most fans on Facebook in 24 Hours," some 1.57 million.
Facebook ads break new ground, said Mr. Bhargava, because they use demographic information volunteered by users—geography, personal interests and professions—that allow for targeted messages.
While marketers can assess the cost of a Like—more than $1 per user and climbing—they haven't yet figured out the long-term value of a Liker.
Ford found that only buying ads encouraging people to "Like" its autos didn't necessarily lead to long-term relationships. Mr. Kelly said.
"You can give them money, and they can give you Likes, but the question is, what is the value of those Likes?"
Some marketers and analysts say Facebook caps its revenues by limiting ad sizes. Facebook ads—and the prices they command—are small compared with other sites because of an early decision by CEO Mark Zuckerberg to keep Facebook uncluttered.
Mr. Schachter, the Macquarie analyst said.
"They haven't really opened the spigots."
Mr. Schachter said, national advertisers can't tell Facebook ,
"'I want to spend $5 million on the home page. They don't have ad units like that."
Facebook has since ramped up its pitch to Madison Avenue. It held its first "client council" last month in New York, where large marketers and ad agencies gathered to give the company feedback.
Among Facebook's recent successes: Sony Corp. is shifting 30% of its traditional ad budget into social sites, including Facebook, for its PlayStation console. Diageo, maker of Smirnoff and Guinness, committed in September to spending more than $10 million on Facebook ads.
In addition to using Facebook's free tools, Ford said, the company was gradually increasing its ad spending on the site and recently closed its largest ad deal with Facebook. But because of the social nature of the site, Mr. Kelly said,
"It doesn't require Ford to spend large dollars on splashy ads to engage customers."
Facebook, meanwhile, is "building our business for the long term," said Mr. Fischer, turning down ads that compromise the user experience.
Ford's immediate concern is keeping Doug's fans happy. The puppet posted a farewell and went missing on Sept. 29. "Waiiit!!! DOUG IS GONE? NoooooooOOOOooo!!" a user posted within 14 minutes.
Mr. Kelly said Ford left Doug's storyline open for a possible return. He said.
"It's like the ending of 'The Sopranos'."
COMMENTARY: I was wondering what happened to Ford's Doug in September. This comes down to what I have been saying about social media marketing: Fans don't engage with brands, they engage with people. It's very important for brand marketers to put a "human face" on their brand. Okay, the puppet Doug is not human, but he is the closest thing. He is next to human-like, and he is funny and cute. Ford Focus fans can relate to Doug on a "human level."
Ford's also understands the distinction between traditional media and social media. Social media should be for social engagement, developing "likeonomics" and creating brand affinity with its customers and fans. Social media is not the right platform for developing selling opportunities. Social advertisements can be very disruptive, diverting attention away from engaging with and communicating to your fans on a more human level.
I tend to agree that Facebook may have unintentionally placed a cap on its advertising revenues by limiting the size of display ads. Advertising agencies love large, impactful ads that can grab a fans attention. Small display ads aren't able to accomplish this.
Lastly, advertisers believe that if they can attain a certain level of fans, something around 10,000, that the viral nature of social media will kick in, and they don't really have to place more ads, because they have built momentum and their brand message will not fade and they achieve a social media freemium level where its not necessary to payup.
It's my guess that in the near future, Facebook will give in to advertisers by offering them larger display ad sizes, and may even resort to charging advertisers for their Facebook page, since many of them view it like it was a freemium ad of sorts. Where else can brands go to build a fan base? Twitter, maybe, but those guys are still experimenting with their Promoted Ad packages.
I think Zuck doesn't have any real values when push comes to shove. He claims he does not want to disrupt the overall online social experience, but that's all BS and double-talk. He had the audacity to tell the government of the People's Republic of China that Facebook was non-political and would allow censorship of its social site.
A whitepaper by social marketing and analytics firm Webtrends, which studied 11,000 Facebook ad campaigns in the U.S., found that the cost of advertising on Facebook that encourages a user to become a “fan” on the brand’s Facebook page is $1.07.
Marketers are increasingly spending money on Facebook fan-acquisition ads.
Why?
Becoming a fan gives brands permission to market directly to a user, both through (free) messages sent to the user’s homepage news feed and through ads that specifically target fans on Facebook.com. It’s arguably better than the old-fashioned style of permission-based digital marketing, which involves gathering customer emails and then blasting them with messages that they might not ever open.
But the rates at which U.S. users are clicking on Facebook ads designed to generate fans are starting to decline, according to Webtrends. In 2009, the so-called click-through rate on such ads was .063%. In 2010, the rate declined to .051%.
At the same time, ads are getting more expensive, rising from 17 cents per thousand in 2009, to 25 cents in 2010. (By comparison, display ads can range from $2 to $8 per thousand on other sites, depending on the site and the type of advertiser.)
What could be causing Facebook advertisers to get fewer clicks for more money?
Justin Kistner, Webtrends’ senior manager of product marketing for social had a few theories. One possibility is that the ads aren’t as effective these days at attracting users, either because the ad creative design is growing boring or because Facebook users are learning to ignore the ads. And ads could be growing more expensive because many of them are sold through an auction system that’s getting increasing competition as more advertisers turn to Facebook.
The lesson, Kistner said, is that the companies that have a head start now, with double-digit millions of fans, are going to end up spending much less money than others. He said.
“There is a competitive advantage to starting now.”
Facebook spokesman Brandon McCormick declined to comment on the specific results of the Webtrends study, which the company didn’t participate in.
But he did say that acquiring a fan is “just the beginning” of how marketers can use Facebook. He said.
“On Facebook, the magic of marketing happens when brands activate their fans in ways that inspire people to share those messages with their friends.”
Webtrends’ Kistner agreed that the campaigns that actually drive return on investment ads are usually built on top of a good fan base.
Kistner said,
“There are a lot of studies trying to say how much is a fan worth, but the answer depends on the kinds of campaigns you are driving at that fan base.” His firm is currently working on a study about the effectiveness of different kinds of campaigns directed at a fan base, known as “fan nurturing.”
Are fans worth $1.07 each for brands? Digits sat down on camera with Michael Lazerow, the CEO of Buddy Media, a firm that sells software for brands that want to market on Facebook. Lazerow argued they’re worth far more. See highlights below.
According to WebTrends, Facebook users are far more likely to click on ads for entertainment, media sites, and blogs than for other kinds of ads.
This chart from a recent Webtrends survey of more than 11,000 Facebook advertiseements measures clickthrough rates (red) and cost per click (blue) for different categories of ads. There's a huge jump in clickthrough rates for the last two categories -- Media & Entertainment and Tabloids & Blogs. In other words, stuff that's fun to discuss with friends.
Health care ads are the least successful, followed -- somewhat surprisingly -- by ads for Internet and software products.
So bottomline, clickthrough rates for automotive advertisers are among the highest of most industrial sectors, and the cost-per-click remains among the lowest, so it is troubling to see why a company like Ford, does not place more ads on Facebook.
If WebTrends survey results are correct, it makes good business sense for more major brands to use Facebook (depending on the industry). Apparently Ford believes it can improve clickthrough rates virally, and reduce its ad costs substantially, so this supports my argument that maybe Facebook should begin charging for either a brand's Facebook page or increase ad sizes to generate more advertising revenues, or possibly both.
Courtesy of an article dated November 2, 2011 appearing in The Wall Street Journal and an article dated January 31, 2011 appearing in BusinessInsider and an article dated February 1, 2011 appearing in The Wall Street Journal Digits
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