For the most part, when a huge corporate client withdraws a multi-million dollar account from a company that relies on that revenue for their own livelihood, panic might set in. A sense of impending doom, certainly. Anger, probably.
In the case of Facebook — in this example, the company that relies on that ad revenue to fuel their own growth — this recently did happen. GM — their huge corporate client — recently pulled their entire advertising budget out of Facebook’s paid advertising, instead choosing to focus primarily on Facebook’s free brand pages, and other forms of advertising.
For a company that is set to IPO tomorrow, with an estimated valuation of over $100 billion, GM’s seeming disapproval of Facebook’s ad program would appear to be a giant blemish on Facebook’s record, signaling the beginning of a mass exodus away from the massive social network’s ad network.
Questioning Facebook’s Effectiveness from a User Standpoint
Certainly, there have been many-a-question raised about Facebook’s own practices — its transparency, user-privacy, and what it does with user-information — but one thing that generally avoids the media’s attention, in part because it might not be the most interesting thing to report on, is the issue of advertising, and whether or not Facebook ads are actually effectiveness.
A recent Associated Press-CNBC poll found that while 82% of Facebook’s revenue from the first quarter of 2012 came from advertising — 82% of over $1 billion — all of that revenue is generated by less than half of the users on the ubiquitous social networking site. As the poll found, 57% of users indicated that they ‘never’ click on Facebook’s ads. Even more dispiriting, 83% of total users indicated that they ‘hardly ever‘ click on Facebook ads. Beyond that, less than half of those surveyed indicated that they trusted Facebook as a place to purchase goods through. For large and small businesses hoping to find marketing success through Facebook and its ad programs, these numbers aren’t good.
Starting to Panic?
To add insult to injury, Facebook — in light of their impending IPO — recently saw a quarter that, despite a huge increase in revenue, saw a not-so-insignificant decrease of 12% in profit. Facebook chalks that up to a bad ad season, but skeptics on Madison Avenue — home to some of the most premier advertising companies in the world — still remain. There still lies the question of whether or not Facebook’s ads are actually effective not only in driving its own users towards individual brand pages, but also in creating a ROI for those advertising dollars.
And further, with Facebook relying primarily on banner ads for their revenue — something that, in recent studies, has proven to be minimally effective – it would then seem that Facebook’s reliance on dated advertising methods is more of a hamstring than a proponent to their overall growth.
Mobile Ads: The New Frontier?
And while Facebook’s ads have been seemingly floundering with low engagement rates, if any, from users, Twitter ads have proven that placing ads in users’ streams can generally be far more effective than simply focusing on banner ads.
And with Facebook’s mobile applications, mobile advertising in users’ timelines might be the next step for Facebook in terms of advertising revenue. With Facebook’s recent acquisition of Instagram, and especially recently Lightbox, Facebook has indicated that it is very, very serious about achieving success in the mobile-space. Despite having well over a hundred million users connecting to Facebook from their mobile devices, Facebook doesn’t currently place ads on their mobile network.
That will soon change, and as some have estimated, it could lead to billions of dollars in additional revenue per year for Facebook. A huge chunk of a change, for sure.
The Importance of a Like
And yet, despite GM’s recent pull-out of their estimated $10 million ad-budget on Facebook (a pittance) there still remains the fact that in buying a ‘like’, advertisers are buying a lot more than just a sale. A Facebook ‘like’ is more of a relationship that is intended to be cultivated than it is a customer that will immediately turn into real dollars. Like Google, Facebook is a free service that intends to remain free. Users are free to use it for as long as they want, and brands are free to create pages and interact with users in any capacity that they like.
But also like Google, some might choose to go the organic route — focusing on driving clicks by simply creating content that will drive those clicks — as opposed to simply placing advertising to achieve what can essentially be done through organic content creation.
But that notion — that many advertisers might choose to go the organic route — shouldn’t concern Facebook. Facebook is a seemingly inseparable part of our culture now, and they know it. Advertisers will flock to the service most likely for years, and that will drive the growth of the company.
Finally, with Facebook set to IPO tomorrow, Zuckerberg and friends should be able to rest easy knowing that, at least immediately, they should all be very, very wealthy once the stock market opens.
Source: MSM DesignZ, Inc. is a Westchester social media company based in NY specializing in advertising, web and graphic design, and SEO.