Facebook will give investors their quarterly peek into its financial performance on Wednesday afternoon, a chance for the public to see how well the company is using its enormous user base to serve advertisers. At least one observer has already concluded that the effort so far has been a major failure.
A Forrester report released this week surveyed 395 marketers about what kind of online advertising they found most effective. Most expressed skepticism about social-media websites in general, with Facebook at the very bottom of the list. Respondents named LinkedIn and Twitter more effective than the world’s biggest social network.
This should be a surprise given Facebook’s combination of both enormous reach and relatively inexpensive advertising rates, according to Nate Elliott, the author of the report. “When you look at the data,” he says of Facebook, “this is a company that should be winning.”
Elliott argues that Facebook isn’t taking advantage of its assets. For instance, the company touts the value of the social graph, an in-depth look at its users’ social connections. But social data was used to target audiences in only 15 percent of Facebook advertising. Elliott says this number was provided by marketers and confirmed by Facebook; the company didn’t respond to requests for comment from Bloomberg Businessweek.
The idea that ads on Facebook aren’t as valuable to marketers as, say, ads on Google is nothing new. The disparity is reflected by the very fact that the giant social network charges advertisers relatively low rates. And Forrester’s report drew some skeptical response because it was based a relatively small sample of people discussing how they feel about Facebook, rather than from data showing actual activity on the site. The suggestion that Facebook is underutilizing its social data has likewise been met with some shrugs. “If Facebook is at 15 percent today, where were they a year ago?” says an analyst at one investment firm. “Either they’re rolling it out slowly or they’re just not flooding the system.”
Adobe’s Digital Index released its own report this week and drew essentially the opposite conclusion as Forrester’s. Analyzing data from traffic on social sites, it found that people are clicking on more Facebook ads and advertisers are seeing 58 percent higher returns on investment than they were a year ago. As a result, Facebook is able to charge 120 percent more on a cost-per thousand basis, the rate sites charge for one thousand views of an advertisement. The social network is finally starting to see the payoff from its investments in its ad platforms over the last several months, said Tamar Gaffney, the index’s principal analyst.
That doesn’t mean Facebook is without its challenges. One of them is coming up with ways to get enough ads on the site to meet advertiser demand without alienating its users. Adobe found that Facebook has increased the number of ads by 85 percent that over the last year. “It doesn’t feel that way because the advertising is better targeted,” says Gaffney.
Meanwhile, the competition is coming. Twitter is already ramping up its advertising operation with a bevy of acquisitions before it goes public later this year. And while Pinterest isn’t selling advertisements yet it is beginning to figure out how it wants to do so. Marketers are licking their chops.
It’s hard to make a direct comparison between these sites now because Facebook’s advertising operations are much further along. But Adobe looked at the amount of traffic that different social sites sent to retail websites, a likely indicator of which social sites retailers will find valuable. Facebook still drives about 57 percent of that traffic. But a year ago it accounted for 77 percent, with Pinterest and Twitter gaining the most ground.
If advertisers really are unhappy with what Facebook has to offer, they’ll have more options soon.
