[Also on Huffington Post here: http://www.huffingtonpost.com/katherine-warman-kern/zuckerbergs-facebook-new-_b_739215.html]
Facebook and particularly Mark Zuckerberg are in the spotlight. The movie, which premiers this week-end, depicts the founder as being untrustworthy. Despite his lack of integrity (or because of it?), Mark Zuckerberg has risen in less than 2 years to the number 35 richest individual in Forbes, surpassing Steve Jobs. Displaying total confidence that his net worth will never disappear, he just gave $100 Million to the Newark, NJ school system. Even the Rockefellers and Fords waited a little longer before setting up their foundations, didn't they?
Is it all based on myth or is Facebook really that magical?
Business Week/Bloomberg’s long article, by Brad Stone, “Facebook Sells Your Friends” explores both possibilities.
Facebook’s financial success is largely due to adoption by advertisers, including brands like Pepsi, Coke, McDonald’s, and Nike. There are two parts to the formula to generate advertising value: scale + response rate. Advertisers know that you can increase response rate by targeting the message for more relevance, but that limits the scale or increases complexity (producing a different message for many targets). The dream is to generate a higher response rate with one message targeted to the largest scale possible.
Combining mammoth scale and high response rate is the dream Facebook promises to deliver.
First scale:
Speaking at the Cannes Lions International Advertising Festival this summer, Zuckerberg said that reaching a billion members is “almost a guarantee.”
This is about double the current global 550 million monthly Unique Visitors (according to the article) and about 6 times the US monthly Unique visitors, which the article claims is now up to 165 Million. This remarkable growth rate versus the three month stall at about 110 Million, December 2009 – February 2010, has been going on since Facebook made everything you publish public (unless you “opt out”) and introduced the Like Button on partner websites across the internet.
We have asked comScore if the timing of the Like button and the growth in Unique Visitors is a coincidence or if clicking the Like button on a Facebook partner site (which is automatically published on your Facebook page) counts you as a Unique Visitor even if you never directly access your page on www.facebook.com. But we haven't received an answer yet. UPDATE: According to Comscore representative, Stephanie Flosi, the answer is: “NO, they would not be counted unless they actually visited Facebook.com”. Unfortunately, this means that Facebook’s low conversion rates for advertisers are low because in fact people don’t respond to ads. And if Nike’s World Cup campaign did receive high response, raising the average presumably, that means everything else receives in even lower response rates than the already low reported average.
. . . the average ad is clicked on by less than a tenth of a percent of the site's users, according to advertisers and analysts, including Greg Sterling, a San Francisco-based Internet marketing consultant.[For alternatives to Facebook read more here.]
This incredibly low response rate suggests that Facebook’s ad targeting isn’t improving response rates.
But, Facebook acts as though the low response rates are not due to lack of people on the site, but because of ads with low recall – in other words, the ads aren't compelling enough for people to notice them. So they encourage “engagement” ads which invite people to hit the “Like” button. If individuals do press the “Like” button, Facebook then moves the ad into the users stream which is syndicated on all their friends’ pages - “So and so liked this ad”. In case those friends miss your “Like” in their stream, Facebook also places the ad in the advertising area on friends’ pages, adding: “your friend(s), so and sos, liked this ad”. The article reports that Nielsen detects a significant difference:
Nielsen, which started measuring the efficacy of Facebook ads a year ago, says that if users see their friend "likes" an ad or has commented on it, they are up to 30 percent more apt to recall the ad's message.
If the click through rate also increases by 30% that isn’t going to move the needle.
- A 30% increase on a tenth of a percent is an increase from .001% to .0013%
This may be why small business owner, David Belden, didn’t have the revenues to continue marketing on Facebook even though he thinks it is so magical:
David Belden, founder of Residential Solar 101, a San Francisco reseller of solar panels, knows exactly who his customer is: male, around 55 years old, and with an environmental conscience often demonstrated in the ownership of a hybrid car. That's right in Facebook's wheelhouse. "I can target my exact audience, rather than trying to come up with a proxy for it," like looking at search terms or which websites people visit, says Belden, who was spending about $4,000 a month on Facebook earlier in the year before he was forced to rein in his marketing expenses because of budget issues. He adds: "If I was bidding on expensive Google keywords like 'solar,' I'd be going against guys with a much larger marketing budget."
But it may be that competitors with the much larger marketing budget and the reach of television have the advantage on Facebook as well. for example, Nike's World Cup "Write the Future"campaign, which represented probably over $300 Million in league sponsorships and actual media investment.
. . .Hundreds of millions of people saw ‘Write the Future’ on television. Before it blanketed traditional media, however, Nike launched the video on Facebook, the Web's dominant social network.
The video started as an ad on the site. Then it was passed from friend to friend, often with comments and members recommending it. In the resulting discussions, the clip was played and commented on more than 9 million times by Facebook users—and helped Nike double its number of Facebook fans from 1.6 million to 3.1 million over a single weekend. Getting the ad onto Facebook cost a few million dollars, according to the companies. All that passing around was free. David Grasso, Nike's chief marketing officer, says Facebook “is the equivalent for us to what TV was for marketers back in the 1960s. It's an integral part of what we do now.”
Facebook is given undue credit for the success of the Nike’s World Cup campaign.
When there is the fan engagement of the World Cup event, the appeal of the talent in the ads which Nike pays enormous amounts of money to have access to, the reach of Nike’s television advertising, and the entertainment value of Nike’s creative, Facebook may give a marketer a chance to actually see and measure the "water cooler" multiplier effect of those combined assets, for "a few million dollars".
But clearly this “case study” is hardly replicable by almost anyone else, especially not small to medium sized businesses. Whatever the multiplier effect Facebook mirrors, it only creates value if there's something to multiply. (multiply any number times zero and you get zero)
At the WARC Future of Advertising Research conference, “Ernie Kim, senior VP at the marketing research company, said that online channels' effectiveness is . . . often overestimated”. This article entitled: “Researchers Warn on Media Measurement” goes on to recommend the importance of studying the impact of marketing mix. Certainly the use and timing of different media channels can alter the impact of any one medium’s performance.
Instead of encouraging media to fight each other over the shrinking advertising pie, by building a case that one medium is better than another, the brands and the media companies may find mutual benefit by identifying how one medium can multiply the response rate of another. Once a new higher benchmark is established, then the individual media would be motivated to collaborate with each other to continue to find new highs.
This would be much more productive than motivating the creation of myths to cover up new lows in response rates.
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