Facebook's secret sauce is pretty simple. There are Facebook users: More than 800 million worldwide. Companies buy Facebook advertising that, on occasion, directs a subset of these users to Facebook pages. Users like these pages, start getting a stream of activity from the brand or product on their news feeds, and voila: Connection created. And that's what makes users want to then buy a can of Coke or watch an upcoming film in the theaters. Right?
Not quite. A new study from Australia's Ehrenberg-Bass Institute indicates that just around 1 percent or so of those "liking" a particular brand on Facebook actually engage with it in any meaningful capacity.
The marketing think tank drew up a list of Facebook's top 200 brands – by number of fans – and tracked all of their related activity over a period of six weeks. Assisting the researchers in this task was Facebook's "People Talking About This" metric, a part of Facebook's Insights analytics platform that tracks all user activity related to a given page: Likes, posts, comments, post sharing, question answering, mentioning a page in a user's status update, et cetera.
According to the researchers, the percentage of "People Talking About This" versus the brands' total fan base was around 1.3 percent in total – as in, a very small percentage of those "engaged" with the brand, by initially showing interest it, were actually interacting with the brand in any capacity.
Subtract Facebook "likes," or the simple act of clicking on a particular status update or other Facebook object to "vote" an interest in it, and the brand engagement percentage drops to around 0.45 percent.
Karen Nelson-Field, senior research associate for Ehrenberg-Bass Institute, in an interview with Ad Age said.
"I don't think it's a bad thing. People need to understand what [Facebook] can do for a brand and what it can't do. Facebook doesn't really differ from mass media. It's great to get decent reach, but to change the way people interact with a brand overnight is just unrealistic."
According to Ad Age, a separate study from the Ehrenberg-Bass Institute indicated that a person's proclivity to purchase a particular brand is in no way affected by whether the person is a fan of the brand on Facebook or not. Or, in other words, Facebook fans of a brand don't suddenly become super-shoppers of that brand – in many ways, they already are. And that's why they're fans.
COMMENTARY: This is terrible news for Facebook on the eve of its IPO filing. If Facebook says in its IPO filing that it increases fan engagement with brands, the Ehrenberg-Bass Institute will throw cold water on that claim.
Another bit of bad news for Facebook. In an article dated December 9, 2011, an Ask Your Target Market survey found that only 12% of respondents said they don’t even notice ads on social media sites. But another 33% just don’t pay any attention to them, 35% aren’t bothered by them, and 20% are annoyed by them.
But they weren’t annoyed enough to pay for use of social media, since only 3.5% of respondents said they would be willing to pay a small fee to keep ads off the sites they use. Another 11% were undecided, but an overwhelming 85.5% said they would rather have ads on these sites than have to pay a fee to use them.
In a blog post dated November 2, 2011, I pointed out that Facebook's pitch to companies is to sell their "bigness," 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. David Fischer, vice president of advertising and global operations for Facebook says the most successful Facebook campaigns combine free content with paid ads.
However, 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. If you compare Google versus Facebook in ad revenues per user, it's no contest. Google wins this contest hands down with average revenues per user of $24.00 versus $4.25 for Facebook. In a blog post dated May 16, 2011, I pointed out that Facebook claims 346 million monthly ad impressions (one-third of the Internet). However, those humongous ad impression numbers simply do not translate into larger ad revenues per user.
Another problem that Facebook has to deal with is "freeriding" by brands. Brand managers now have the social media tools and experience with social media to acquire hundreds of thousands of fans on their own. Many brand managers believe that once they have reached a critical tipping in the number of fans, that word-of-mouth marketing will automtically kick in, so they don't need to advertise any longer. In fact, the majority of Fortune 500 brands have fan pages on Facebook, but spend very little on Facebook ads. Since Facebook supplies fan pages for free, there is simply no incentive for brands to advertise, and this is a huge problem for Facebook.
When you combine all of the above, including the latest study that only 99% of Facebook users engage with brands, it makes you wonder what Facebook is going to tell investors during their IPO road show about their future growth and ad revenue potential. The evidence is piling up with study after study showing that brand engagement is poor, ads are being ignored, clickthrough rates are abysmal, and brands have a problem measuring ROI's. Facebook ad rates are also increasing again, which makes you wonder, just what the fuck does Facebook ad salespeople tell advertisers to sell them higher rates with all the negative studies.
I will be the first to admit that I have come down very hard on Facebook and all social networks using the ad-supported revenue model. If you disagree with the above, and still believe that Facebook is the Holy Grail of advertising, then you absolutely must read my blog post dated March 20, 2011. If you beg to differ, provide hard facts, don't just tell me I am full of it. No more Mr. Nice guy when it comes to social networks.
Courtesy of an article dated January 28, 2012 appearing in PC Magazine and an article dated December 9, 2011 appearing in AYTM
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