There are pearls in Facebook’s inaugural financials for those seeking hints about the site’s effectiveness as a marketing medium. To find ‘em, look beyond the profit-and-loss numbers. This forum isn’t about investment advice, and the company isn’t going belly-up soon, so those numbers represent side issues at best.
First, the bits that Facebook stressed: Its sheer number of users is growing. Compared with second-quarter 2011, monthly active users rose 29% to 955 million, daily users jumped 32% to 552 million, and monthly mobile users leapt 67%, to 543 million.
That’s a lot of consumers merrily farming, posting and liking things. The question is whether they are making purchases – that is, whether Facebook is a legitimate ecommerce play, as opposed to merely a branding medium.
Facebook Pushes “Sponsored Stories”
Facebook would have businesses believe so. Within its second quarter financial release, the company talks about making its “Sponsored Stories” option in desktop News Feeds a much larger part of its overall strategy. It also highlights the fact that it is enabling advertisers to purchase sponsored stories in Facebook news feeds accessed on mobile devices.
Sponsored Stories, for the uninitiated, are those which businesses have paid to have highlighted in Facebook user news feeds – once friends of the user have liked said stories, or checked into sponsored businesses.
During the company’s first earnings call, COO Sheryl Sandberg sketched out how Sponsored Stories work. She gave the example of a Facebook user who gave a positive review of something bought at Wal-Mart. Wal-Mart, Sandberg said, would have the opportunity to pay to keep that post atop Facebook news feeds. Doing so would increase the number of friends exposed to the post beyond the 20% normally anticipated for a random post.
Sponsored Stories, Sandberg added, perform “multiple times better” than ads on the site’s right-hand column, as measured by click-through rates.
“Sponsored stories are the cornerstone of the company’s mobile monetization strategy,” Sandberg said. “We avoid the dilemma of where to put ads on the smallish screen. With News Feed, marketing is incorporated seamlessly into the user experience on mobile devices.
But sponsored stories are more like magazine ads than ecommerce enablers. And, like print ads, it’s hard to demonstrate their direct impact on sales. The company has been focusing on non-sales metrics. “As we continue to roll out sponsored stories in News feed, we are carefully monitoring user engagement and sentiment, and are pleased with the results to date,” Sandberg said.
“We…have a measurement challenge,” Sandberg added. “When you see an ad on Facebook you don’t go and click to a purchase right there. But you are more likely to search later on and buy a product or to walk into a store and buy a product. So we have the challenge of teaching marketers how to develop social marketing, and then working with them so we can tie the consumer experience of seeing a Facebook ad and interacting with that brand to a purchase that happens later on.”
Not that Facebook isn’t trying to link its ads to sales. Facebook’s financial release cites “third-party methodologies like panels and marketing mix models” from more than 60 advertising campaigns. According to Facebook, 70% of the campaigns analyzed yielded a return on ad spend of 300% or more.
There may be less there than meets the eye, depending on how those figures were calculated. Facebook doesn’t go into great detail, and given its reliance on non-generally accepted accounting practices in its reported numbers, it’s hard not to be a little skeptical. Panels and marketing mix models? This may mean customers are asked all the ways they might have been exposed to a marketer’s messages, and Facebook uses some sort of alchemy to determine the percentage of the sale for which it wants to claim credit.
Mobile, Data Use Offer Facebook Growth Opportunities
Advertisers spent $992 million on Facebook spots during second quarter 2012, a 28% jump from second quarter 2011. According to CFO David Ebersman growth in number of users is outstripping ad revenue increases because more users are accessing Facebook through their mobile devices – a channel that offers fewer spaces for ads. The ad revenue increase reflects an 18% increase in ads delivered coupled with a 9% uptick in the average price per ad.
John Corpus, CEO of Milyoni, a firm that helps convert Facebook fans into customers, is bullish but clear-eyed on the site’s potential as a sales medium.
“When you look at its earnings report, it talks about use growth, daily active users and international growth,” Corpus says. “The interesting thing is that [management] didn’t talk about company growth and company participation. They talked a little about advertising, but not about the companies that are investing in advertising. Are they top Fortune 1000 firms? Is Facebook targeted to small- and medium-sized businesses? Who are they targeted at?”
Actually, it’s a mix. Sandberg offered generalizations, saying that most of the Advertising Age Global 100 are represented every quarter on Facebook. But, she notes, they spend a small amount of their budgets with Facebook while consumers spend a amount of time on the site.
Marketers Face Hurdles In Using Facebook
At the same time, small- and medium-sized marketers have experienced hurdles in participating in Facebook. “The advertising experience on Facebook is complicated to date,” Sandberg said during the earnings call. “And that is mainly because we are a completely new kind of marketing. We are not TV, we are not search. We are a third medium. And that presents a challenge, because the messages that talk at consumers on other platforms need to really be adapted and changed to be more inclusive. The right ad on TV or on search is the wrong ad for Facebook. Facebook marketers need to learn how to make their ads a two way dialog with consumers.”
The knowledge and manpower needed to do this may not be as readily available to smaller marketers, she said, adding that Facebook is actively seeking to educate smaller marketers into how to best use it.
Other reasons for reluctance among advertisers to test Facebook may be rooted in a lag in trust and security between it and potential marketers.
“When Facebook started it was very focused on user engagement,” Corpus says. “But it had and still has a notion of a hacking-type culture. It doesn’t have an enterprise approach to how it releases things into the world. [Users and marketers] get introduced to new features without knowing it.
“Corporations don’t like surprises, and part of the hacking culture is that it turns out code at a rapid pace, and there tend to be surprises about what is coming out.”
But Corpus characterizes Facebook’s ability to monetize its data resources as “mediocre at best”.
“The data it captures, in amount and reach, is a marketer’s dream,” he says, adding that part of why he characterizes the company’s efforts is the sheer scope of data available.
“How do you go to a consumer products firm and say ‘look at all this data? How can you make sense of all this data to get better advertising and results’?”
Facebook will also need to improve how it is accessed on mobile devices before it is accepted as an ecommerce platform. Facebook apps, especially third-party apps, have a reputation for not translating well from the desktop to the phone.
“Look at Facebook’s international growth,” Corpus says. “[Other countries] have been, and will be a more mobile-ly advanced group. Brazil and Asia are more dependent on the devices than we are. It makes sense that there will be huge growth opportunities for them as they move into mobile and international [arenas].”