After studying this section you should be able to do the following:
- Describe the differences in the Facebook and Google ad models.
- Explain the Hunt versus Hike metaphor, contrast the relative success of ad performance on search compared to social networks, and understand the factors behind the latter’s struggles.
- Recognize how firms are leveraging social networks for brand and product engagement, be able to provide examples of successful efforts, and give reasons why such engagement is difficult to achieve.
If Facebook is going to continue to give away its services for free, it needs to make money somehow. Right now the bulk of revenue comes from advertising. Fortunately for the firm, online advertising is hot. For years, online advertising has been the only major media category that has seen an increase in spending (see Chapter 14 “Google: Search, Online Advertising, and Beyond”). Firms spend more advertising online than they do on radio and magazine ads, and the Internet will soon beat out spending on cable TV (Sweeney, 2008; Wayne, 2010). But not all Internet advertising is created equal. And there are signs that social networking sites are struggling to find the right ad model.
Google founder Sergey Brin sums up this frustration, saying, “I don’t think we have the killer best way to advertise and monetize social networks yet,” that social networking ad inventory as a whole was proving problematic and that the “monetization work we were doing [in social media] didn’t pan out as well as we had hoped1.” When Google ad partner Fox Interactive Media (the News Corporation division that contains MySpace) announced that revenue would fall $100 million short of projections, News Corporation’s stock tumbled 5 percent, analysts downgraded the company, and the firm’s chief revenue officer was dismissed (Stelter, 2008).
Why aren’t social networks having the success of Google and other sites? Problems advertising on these sites include content adjacency, and user attention. The content adjacency problem refers to concern over where a firm’s advertisements will run. Consider all of the questionable titles in social networking news groups. Do advertisers really want their ads running alongside conversations that are racy, offensive, illegal, or that may even mock their products? This potential juxtaposition is a major problem with any site offering ads adjacent to free-form social media. Summing up industry wariness, one P&G manager said, “What in heaven’s name made you think you could monetize the real estate in which somebody is breaking up with their girlfriend?” (Stone, 2008) An IDC report suggests that it’s because of content adjacency that “brand advertisers largely consider user-generated content as low-quality, brand-unsafe inventory” for running ads (Stross, 2008).
Now let’s look at the user attention problem.
Attention Challenges: The Hunt Versus The Hike
In terms of revenue model, Facebook is radically different from Google and the hot-growth category of search advertising. Users of Google and other search sites are on a hunt—a task-oriented expedition to collect information that will drive a specific action. Search users want to learn something, buy something, research a problem, or get a question answered. To the extent that the hunt overlaps with ads, it works. Just searched on a medical term? Google will show you an ad from a drug company. Looking for a toy? You’ll see Google ads from eBay sellers and other online shops. Type in a vacation destination and you get a long list of ads from travel providers aggressively courting your spending. Even better, Google only charges text advertisers when a user clicks through. No clicks? The ad runs at no cost to the firm. From a return on investment perspective, this is extraordinarily efficient. How often do users click on Google ads? Enough for this to be the single most profitable activity among any Internet firm. In 2009, Google revenue totaled nearly $24 billion. Profits exceeded $6.5 billion, almost all of this from pay-per-click ads (see Chapter 14 “Google: Search, Online Advertising, and Beyond” for more details).
While users go to Google to hunt, they go to Facebook as if they were going on a hike—they have a rough idea of what they’ll encounter, but they’re there to explore and look around, enjoy the sights (or site). They’ve usually allocated time for fun and they don’t want to leave the terrain when they’re having conversations, looking at photos or videos, and checking out updates from friends.
These usage patterns are reflected in click-through rates. Google users click on ads around 2 percent of the time (and at a much higher rate when searching for product information). At Facebook, click-throughs are about 0.04 percent (Urstadt, 2008).
Most banner ads don’t charge per click but rather CPM (cost per thousand) impressions (each time an ad appears on someone’s screen). But Facebook banner ads performed so poorly that the firm pulled them in early 2010 (McCarthy, 2010). Lookery, a one-time ad network that bought ad space on Facebook in bulk, had been reselling inventory at a CPM of 7.5 cents (note that Facebook does offer advertisers pay-per-click as well as impression-based, or CPM, options). Even Facebook ads with a bit of targeting weren’t garnering much (Facebook’s Social Ads, which allow advertisers to target users according to location and age, have a floor price of fifteen cents CPM) (Urstadt, 2008; Schonfeld, 2008). Other social networks also suffered. In 2008, MySpace lowered its banner ad rate from $3.25 CPM to less than two dollars. By contrast, information and news-oriented sites do much better, particularly if these sites draw in a valuable and highly targeted audience. The social networking blog Mashable has CPM rates ranging between seven and thirty-three dollars. Technology Review magazine boasts a CPM of seventy dollars. TechTarget, a Web publisher focusing on technology professionals, has been able to command CPM rates of one hundred dollars and above (an ad inventory that valuable helped the firm go public in 2007).
Getting Creative with Promotions: Does It Work?
Facebook and other social networks are still learning what works. Ad inventory displayed on high-traffic home pages have garnered big bucks for firms like Yahoo! With Facebook offering advertisers greater audience reach than most network television programs, there’s little reason to suggest that chunks of this business won’t eventually flow to the social networks. But even more interesting is how Facebook and widget sites have begun to experiment with relatively new forms of advertising. Many feel that Facebook has a unique opportunity to get consumers to engage with their brand, and some initial experiments point where this may be heading.
Many firms have been leveraging so-called engagement ads by making their products part of the Facebook fun. Using an engagement ad, a firm can set up a promotion where a user can do things such as “Like” or become a fan of a brand, RSVP to an event and invite others, watch and comment on a video and see what your friends have to say, send a “virtual gift” with a personal message, or answer a question in a poll. The viral nature of Facebook allows actions to flow back into the news feed and spread among friends.
COO Sheryl Sandberg discussed Ben & Jerry’s promotion for the ice cream chain’s free cone day event. To promote the upcoming event, Ben & Jerry’s initially contracted to make two hundred and fifty thousand “gift cones” available to Facebook users; they could click on little icons that would gift a cone icon to a friend, and that would show up in their profile. Within a couple of hours, customers had sent all two hundred and fifty thousand virtual cones. Delighted, Ben & Jerry’s bought another two hundred and fifty thousand cones. Within eleven hours, half a million people had sent cones, many making plans with Facebook friends to attend the real free cone day. The day of the Facebook promotion, Ben & Jerry’s Web site registered fifty-three million impressions, as users searched for store locations and wrote about their favorite flavors (Hardy, 2008). The campaign dovetailed with everything Facebook was good at: it was viral, generating enthusiasm for a promotional event and even prompting scheduling.
In other promotions, Honda gave away three quarters of a million hearts during a Valentine’s Day promo (Sandberg, 2009), and the Dr. Pepper Snapple Group offered two hundred and fifty thousand virtual Sunkist sodas, which earned the firm one hundred thirty million brand impressions in twenty-two hours. Says Sunkist’s brand manager, “A Super Bowl ad, if you compare it, would have generated somewhere between six to seven million” (Wong, 2008).
Facebook, Help Get Me a Job!
The papers are filled with stories about employers scouring Facebook for dirt on potential hires. But one creative job seeker turned the tables and used Facebook to make it easier for firms to find him. Recent MBA graduate Eric Barker, a talented former screenwriter with experience in the film and gaming industry, bought ads promoting himself on Facebook, setting them up to run only on the screens of users identified as coming from firms he’d like to work for. In this way, someone Facebook identified as being from Microsoft would see an ad from Eric declaring “I Want to Be at Microsoft” along with an offer to click and learn more. The cost to run the ads was usually less than $5 a day. Said Barker, “I could control my bid price and set a cap on my daily spend. Starbucks put a bigger dent in my wallet than promoting myself online.” The ads got tens of thousands of impressions, hundreds of clicks, and dozens of people called offering assistance. Today, Eric Barker is gainfully employed at a “dream job” in the video game industry2 (Sentementes, 2010).
Of course, even with this business, Facebook may find that it competes with widget makers. Unlike Apple’s App Store (where much of developer-earned revenue comes from selling apps), the vast majority of Facebook apps are free and supported by ads. That means Facebook and its app providers are both running at a finite pot of advertising dollars. Slide’s Facebook apps have attracted top-tier advertisers, such as Coke and Paramount Pictures—a group Facebook regularly courts as well. By some estimates, in 2009, Facebook app developers took in well over half a billion dollars—exceeding Facebook’s own haul (Learmonth & Klaasen, 2009). And there’s controversy. Zynga was skewered in the press when some of its partners were accused of scamming users into signing up for subscriptions or installing unwanted software in exchange for game credits (Zynga has since taken steps to screen partners and improve transparency) (Arrington, 2009).
While these efforts might be innovative, are they even effective? Some of these programs are considered successes; others, not so much. Jupiter Research surveyed marketers trying to create a viral impact online and found that only about 15 percent of these efforts actually caught on with consumers (Cowan, 2008). While the Ben & Jerry’s gift cones were used up quickly, a visit to Facebook in the weeks after this campaign saw CareerBuilder, Wide Eye Caffeinated Spirits, and Coors Light icons lingering days after their first appearance. Brands seeking to deploy their own applications in Facebook have also struggled. New Media Age reported that applications rolled out by top brands such as MTV, Warner Bros., and Woolworths were found to have as little as five daily users. Congestion may be setting in for all but the most innovative applications, as standing out in a crowd of over 550,000 applications becomes increasingly difficult3.
Consumer products giant P&G has been relentlessly experimenting with leveraging social networks for brand engagement, but the results show what a tough slog this can be. The firm did garner fourteen thousand Facebook “fans” for its Crest Whitestrips product, but those fans were earned while giving away free movie tickets and other promos. The New York Times quipped that with those kinds of incentives, “a hemorrhoid cream” could have attracted a similar group of “fans.” When the giveaways stopped, thousands promptly “unfanned” Whitestrips. Results for Procter & Gamble’s “2X Ultra Tide” fan page were also pretty grim. P&G tried offbeat appeals for customer-brand bonding, including asking Facebookers to post “their favorite places to enjoy stain-making moments.” But a check eleven months after launch had garnered just eighteen submissions, two from P&G, two from staffers at spoof news site The Onion, and a bunch of short posts such as “Tidealicious!” (Stross, 2008)
Efforts around engagement opportunities like events (Ben & Jerry’s) or products consumers are anxious to identify themselves with (a band or a movie) may have more success than trying to promote consumer goods that otherwise offer little allegiance, but efforts are so new that metrics are scarce, impact is tough to gauge, and best practices are still unclear.
Facebook Engagement Ads
- Content adjacency and user attention make social networking ads less attractive than search and professionally produced content sites.
- Google enjoys significantly higher click-through rates than Facebook.
- Display ads are often charged based on impression. Social networks also offer lower CPM rates than many other, more targeted Web sites.
- Social networking has been difficult to monetize, as users are online to engage friends, not to hunt for products or be drawn away by clicks.
- Many firms have begun to experiment with engagement ads. While there have been some successes, engagement campaigns often haven’t yielded significant results.
Questions and Exercises
- How are most display ads billed? What acronym is used to describe pricing of most display ads?
- How are most text ads billed?
- Contrast Facebook and Google click-through rates. Contrast Facebook CPMs with CPMs at professional content sites. Why the discrepancy?
- What is the content adjacency problem? Search for examples of firms that have experienced embracement due to content adjacency—describe them, why they occurred, and if site operators could have done something to reduce the likelihood these issues could have occurred.
- What kinds of Web sites are most susceptible to content adjacency? Are news sites? Why or why not? What sorts of technical features might act as breeding grounds for content adjacency problems?
- If a firm removed user content because it was offensive to an advertiser, what kinds of problems might this create? When (if ever) should a firm remove or take down user content?
- How are firms attempting to leverage social networks for brand and product engagement?
- What are the challenges that social networking sites face when trying to woo advertisers?
- Describe an innovative marketing campaign that has leveraged Facebook or other social networking sites. What factors made this campaign work? Are all firms likely to have this sort of success? Why or why not?
- Have advertisers ever targeted you when displaying ads on Facebook? How were you targeted? What did you think of the effort?
1“Everywhere and Nowhere,” Economist, March 19, 2008.
2Eric is a former student of mine. His story has been covered by many publications, including J. Zappe, “MBA Grad Seeks Job with Microsoft; Posts Ad on Facebook,” ERE.net, May 27, 2009.
3Facebook Press Room, Statistics, April 29, 2010, http://www.facebook.com/press/info.php?statistics.
Arrington, M., “Zynga Takes Steps to Remove Scams from Games,” TechCrunch, November 2, 2009.
Cowan, M., “Marketers Struggle to Get Social,” Reuters, June 19, 2008, http://www.reuters.com/news/video?videoId=84894.
Hardy, Q., “Facebook Thinks Outside Boxes,” Forbes, May 28, 2008.
Learmonth M. and A. Klaasen, “Facebook Apps Will Make More Money Than Facebook in 2009,” Silicon Alley Insider, May 18, 2009.
McCarthy, C., “More Social, Please: Facebook Nixes Banner Ads,” CNET, February 5, 2010.
Sandberg, S., “Sheryl Sandberg on Facebook’s Future,” BusinessWeek, April 8, 2009.
Schonfeld, E., “Are Facebook Ads Going to Zero? Lookery Lowers Its Guarantee to 7.5-cent CMPs,” TechCrunch, July 22, 2008.
Sentementes, G., “‘Hire Me’ Nation: Using the Web & Social Media to Get a Job,” Baltimore Sun, July 15, 2009; and E. Liebert, Facebook Fairytales (New York: Skyhorse, 2010).
Stelter, B., “MySpace Might Have Friends, but It Wants Ad Money,” New York Times, June 16, 2008.
Stone, B., “Facebook Aims to Extends Its Reach across Web,” New York Times, December 1, 2008.
Stross, R., “Advertisers Face Hurdles on Social Networking Sites,” New York Times, December 14, 2008.
Sweeney, M., “Internet Ad Spending Will Overtake Television in 2009,” Guardian, May 19, 2008.
Urstadt, B., “The Business of Social Networks,” Technology Review, July/August 2008. Rates quoted in this piece seem high, but a large discrepancy between site rates holds across reported data.
Wayne, T., “A Milestone for Internet Ad Revenue,” New York Times, April 25, 2010.
Wong, E., “Ben & Jerry’s, Sunkist, Indy Jones Unwrap Facebook’s ‘Gift of Gab,’” Brandweek, June 1, 2008.