15 Comments

Why Facebook Adspace is Worth Bupkis

Jul 15, 2010
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When you look at the depth of user data that Facebook possesses, all signs suggest that the social network should be an advertising powerhouse. However, recent numbers show that Facebook ads are worth less than 25 percent the industry average.

Considering the social network for what it is, however, it’s not surprising that Facebook struggled with its advertising model.  Facebook is a collection of features and functions that transcend the conventional web-based experiences around which current digital ad models have been designed. If Facebook has a future as a digital advertising channel, it’s going to have to reinvent its ad space.

Low Value Ad Space

Data from ComScore shows that ad space on Facebook (and other social networks) is worth less than 25 percent the online average. Social network CPMs are so far below average, in fact, that they’ve driven web-wide CPMs down by nearly 20 percent. As AdAge reports:

A recent analysis by ComScore shows social networks, primarily Facebook and MySpace, have over the last year drawn an average CPM of only 56 cents, compared to the $2.43 average for the internet at large. Looking more closely, the ComScore data show that the average pricing for online ads exclusive of social-networking sites, namely Facebook and MySpace, would be much higher, about $2.99 for every 1,000 views; social sites dragged down the average online CPM by as much as 18% over the last year.

While part of the problem is likely the sheer volume of page views that Facebook (and other social networks) receives, part of it is undoubtedly conversion rates. After all, users log in to Facebook to interact/socialize, not consume.

Basically, all Facebook ads are placed out of context.

So despite the depth of user-data that Facebook possesses and the hyper-targeting abilities it could make possible, Facebook needs to find something other than Facebook Ads to appeal to advertisers. User-generated-content isn’t the same thing as consumer content, and users interact with it with it in an entirely different way.

Reinventing the Wheel

While Facebook has the means (i.e. the data) to “hyper-target” users, they still lack an appropriate channel. Essentially, the way in which Facebook users interact with the site renders most Facebook ads untargeted to the extent that they’re unwelcome. So what Facebook has to do is develop a completely new value proposition for advertisers by taking that user experience away from the conventional web.

Basically, Facebook must devise some way to build marketing messages into the user experience. But when all your content is UGC, how do you pursue a symbiotic editorial?

Part of that will come through Facebook Connect – i.e. opening up the social graph to third-parties that provide the consumer content they lack. And part of it might lie in mobile – i.e. the mobile OS that Facebook might be developing.

Exactly what that advertising opportunity is going to end up looking like is anyone’s guess. What is certain is that until Facebook develops and deploys it, their ad space will still be worth bupkis – and if they drag their feet, they might end up being the next MySpace.

Filed under: Contextual Advertising + Mobile - Commerce, Apps, Ads, Security + Social Media + Social Networks & Networking
  • http://zorz.com Keith Posehn

    I do and don't agree with you here. As an advertiser on Facebook, I spend quite a bit and have seen my share of great successes and total duds. However, despite the issues, FB is extremely profitable if you take your time to test and get it right.

    One thing that is very appealing is actually the lower average CPM found on FB as it makes testing less costly and profits better when you nail the targeting. Also, we are trying to pull people away from what they are doing at the time and we can't call someone out and say "Eddie Izzard fans – get a free iPad!" (to name one horrid example). Despite this, the user data is a treasure trove if you look at your market and try to understand what they need.

    While I would like to see more ad options on Facebook and some newer ways of integrating them with the experience, as advertisers we need to remember that despite the issues, FB ads are a rapidly growing – and profitable – force in online ads.

  • http://noseyparker.net Nosey Parker

    I disagree for my business as well. I max out my click budget daily when I advertise with them. Using it for promotions is extremely worthwhile for my type of business.

  • http://www.bobology.com Bob Cohen

    My experience with using Facebook ads is that contests and giveaways work, while other PPC ads on Facebook don't. Businesses that use the Facebook PPC ads to drive up their Facebook Page followers are only doing so in conjunction with the classic contest and coupon giveaway.

    Smarter people that are getting better results are using groups and Facebook applications to access the Facebook population.

  • http://www.iwannagofirst.com Carlos Pacheco

    I agree with Keith's comments. I'm an advertiser as well and I've been using Facebook ads for a few months now with some success. The targeting possibilities are there but like Keith says there is a limited choice in formats. What's really peaking my curiosity is the possibility of Facebook getting into the search space since Bing search results are now integrated into Facebook's OS.

  • http://noseyparker.net Nosey Parker

    I would be careful of using the word "they are only" and "smarter people". You have no idea what everyone uses it for in their business and I DO make money at it whether I am doing a promo or not. It depends on why you are using it and if you are skilled in turning fans into buyers.

  • http://www.revenews.com Angel Djambazov

    I would agree with the comments above that the Facebook targeting, specifically the "likes and interest" section, is easily the most promising aspect of Facebook Ads.

    However, one of my favorite stories from running campaigns on Facebook is when Jones Soda, a client of mine, tried to run ads for their Hanukkah pack soda. Interestingly at the time the term Hanukkah (or alternate spelling Chanukah) was not available, where the term Christmas was. We asked Facebook Ads support team about the discrepancy. What's funny is that they did get back to us saying the term was available…in January.

    The potential of promising targeting aside, CT is right in that NDL (to paraphrase basketball lingo) Numbers Don't Lie.

    If Facebook could get $2.43 CPM why are they settling for a $0.56 CPM? Because larger advertisers still think of Facebook ads: as something they might run if they were using MSNDR (thus the potential tie to Bing); as a testing ground for messaging; and as a way to increase followers on their Facebook page.

    Ultimately CT is right on when he states, "most Facebook ads untargeted to the extent that they’re unwelcome." It is a factor that mitigates the benefits of the interface.

    If Facebook doesn’t want to give up that $1.87 CPM, that's something they will have to fix.

  • http://www.gypsybandito.com CT Moore

    I actually agree with all of you. Facebook is a GREAT DEAL FOR ADVERTISERS.

    Nevertheless, that doesn't help Facebook. What I meant is that the low ad values don't bode well for Facebook or its investors.

    They really need to find a better way of monetizing all that data and traffic — as well as recouping their overhead.

  • http://zorz.com Keith Posehn

    Well CT, as we all pile further and further into it, the cost will rise. It already has risen dramatically (I remember the days of $0.10 cpc fondly, its now more like $0.75 at least).

    Low ad value is certainly an issue for low volume advertisers, no doubt. However, I'd say that FB is in a unique position: 176 billion impressions in Q1 2010 – 16.2% of the market, topping everyone else. Yes, Yahoo is in second place with a much higher average CPM and therefore more revenue, but for FB volume makes up for the low ad value right now, and the better we advertisers become at targeting and the more there are, that rate is going to rise.

    In my opinion it isn't a question of what FB could sell the impressions for, as they have created a pretty robust market internally. The system is run on a demand basis instead of a negotiation basis, which makes a huge difference for tens of thousands of advertisers.

  • http://www.gypsybandito.com CT Moore

    @Kieth, you have a point that their pageview volume will help make up for it. But with an average CPM of only $0.56 compared to $2.99, they'll never be taken seriously by the major advertisers — i.e. the guys who spend hundreds of thousands a month on their banner campaigns.

    Take Adwords: there's a blend of DIY advertisers and major companies that spend hundreds of thousands a month on clicks month after month. And it's having these guys as advertisers on paper that help bolster the companies value.

    Again, I'm not saying that Facebook is in on the verge of imploding. I'm just saying that they're not anywhere near their ad revenue potential, and if they want to meet that potential, they have to reinvent their ad offer — which they can and should

  • Pat Grady

    "Basically, Facebook must devise some way to build marketing messages into the user experience. But when all your content is UGC, how do you pursue a symbiotic editorial?"

    Statement AND question of the year award to you CT.

    Your articles are always thorough, timely and thought provoking – but with this one, I think you've squeezed some fresh genius juice. Zuckerberg should wallpaper their offices with posters of your two sentences above. Make "way" plural above and my second sock would also have blown off.

  • http://www.benjaminwilkinson.com Ben Wilkinson

    Advertising on Facebook is just like advertising anywhere else – test, measure, repeat as warranted.

    CT, in your comment directed to Kieth, you said that Facebook will never be taken seriously by major advertisers, have you noticed who's advertising on Facebook? Apple, Mastercard, Visa, and more have all done major campaigns on facebook. What's more, more and more tv spots are directing viewers to the brands facebook page rather than directly the brand's URL. This tells me that a lot of big time Advertisers and brands are finding significant value on Facebook.

  • http://www.simpleclicktocall.com.au Dave

    I haven't had any luck from facebook advertising, for me google adwords is a clear cut winner.

    I think it all depends on what your product is and if brand awareness is of any value to you. Obviously big brands just need exposure, but the question is, do you turn to facebook when your looking to purchase, or do you 'google' it?

  • http://zorz.com Keith Posehn

    @Ben Wilkinson I see the same thing in general. Lots of big brands making my life difficult ;)

    Low CPM's don't mean advertisers won't take FB seriously. After all, if high CPM on a major network isn't yielding ROI but a low CPM on FB is, where is my money going to go? But we are both in agreement that it is a low CPM for sure and they can do more to leverage their page space and apps to profit.

    @Dave It does depend on your product, but before you write off FB, look at how you are approaching the consumer with your offering. What works on search rarely works on FB. Hit me up if you want to talk tactics – I might be able to help.

  • http://www.searchgain.com Dave Nathan

    I've yet to notice one person comment on the two types of Facebook traffic: facebook.com traffic and apps.facebook.com traffic.

    My wishlist for Facebook includes the ability to bid separately for regular ad wall traffic vs. apps traffic (example: ads shown while a user is playing Farmville).

    If you have Google Analytics in place, you'll see that the apps.facebook.com visitor is worth a fraction of the non-apps visitor.

    To me, there's a clear difference between the two types of users and it all comes down to attention level.

  • eldercompass

    hmm – I am on my second FB contest campaign and the hits are pretty immediate. I like the low cost structure as I am bootstrapping.