Do Facebook Ads Work?

Facebook ads can be effective, according to a recent study conducted by the social media giant and comScore.

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Pedestrians are reflected in a window near a display of the share price for Facebook Inc., displayed at the Nasdaq MarketSite in New York, U.S., on Tuesday, May 29, 2012. Facebook Inc. shares fell to a new low, extending losses from the worst-performing large initial public offering during the past decade to more than 20 percent. Photographer: Scott Eells/Bloomberg via Getty Images

It’s been a rough few weeks for Facebook — not to mention its shareholders. After going public at $38 per share in May, the social networking titan has lost nearly half its value, wiping out some $50 billion worth of shareholder equity. (Of course, Facebook insiders cashed out to the tune of nearly $10 billion during the offering, but hey, some people have good timing.) Key executives are racing for the exits faster than Usain Bolt, prompting concerns of a brain-drain. Meanwhile, the state of California is bracing for the loss of potential tax revenue due to Facebook’s nose-dive. Calls are mounting for founder Mark Zuckerberg to step aside. And there’s reason to believe that Facebook’s “market meltdown” isn’t over.

As Rob Cox at Reuters wrote Monday:

All the red flags that were flying when the company debuted – overpriced shares, shoddy corporate governance, huge challenges to the core business and a damaged brand – remain at full mast today. In this respect, Facebook looks like a proverbial example of what’s known on Wall Street as a falling knife – that is, one that can cost investors their fingers if they try to catch.

(MORE: How Low Can Facebook Go?)

Against this deteriorating backdrop, it’s worth taking a step back to ponder one of the more existential questions about Facebook: Do the company’s ads work? Is Facebook advertising a good value proposition for marketers? It’s an issue that came to the forefront just days before the company’s IPO, when auto giant GM yanked its ads from Facebook after concluding they have “little impact on consumers’ car purchases.” (Last week, the GM marketing executive behind that decision, Joel Ewanick, resigned from the company, and GM has said it might resume advertising on Facebook.)

Facebook’s strategy is based on the premise that “social” is the future of the online advertising business. It’s the idea that recommendations from friends and companies alike are going to be more effective than traditional display advertising at driving consumer behavior.

That’s the theory, anyway. But is it true? In order to get a handle on the effectiveness of Facebook advertising for marketers, I reached out to Andrew Lipsman, VP of Industry Analysis at comScore, and co-author of the recent study, “The Power of Like[2]: How Social Marketing Works.” The study was a collaboration between comScore and Facebook, and relied on the social network’s closely-held internal analytics platform, as well as proprietary comScore analysis and other data. ComScore conducts dozens of major studies every year working with industry partners, and after speaking to Lipsman over the last week, I’m confident about the integrity of the findings. Here are the main points from the study, and from my conversation with Lipsman.

(MORE: Facebook IPO Fallout: Four Lessons from a Rocky Public Debut)

Yes, Facebook ads can work. But there are different types of ads, and certain types work better for some marketers than others do, according to Lipsman. “Facebook ads can absolutely drive advertising effectiveness,” he says, “but there aren’t enough data points to generalize yet” with a broad brush statement like “Facebook ads work,” or “Facebook ads do not work.” It’s simply more nuanced than that, and there are many variables at play, including the type of ad, as well as color, location and creative elements. “This is a totally new platform,” says Lipsman. “There are some unique aspects to it, and we’re still in the early days. This process will play out over the next couple of years.”

Crucially, Lipsman says, there is simply not enough data to generalize about the effectiveness of Facebook ads compared to other big online publishers like Yahoo and AOL. That’s an important caveat, one that reflects just how nascent Facebook’s ad platform really is.

“Exposed” fans and friends of fans do, in fact, spend more. The study looked at online and offline purchase behavior of fans and friends of fans for Amazon, Best Buy, Target and Walmart during the 2011 holiday shopping season. The researchers measured that purchase behavior against spending by the general population. Not surprisingly, the study found that “fans” of retailers, on average, spent significantly more at those stores than did the general population — more than twice as much at Amazon, Best Buy and Target, and almost that much more at Walmart. Much more impressive and to the point, however, is that “Friends of Fans” also typically spent more – only 8% more at Amazon, but a striking 51% more at Target and 104% more at Best Buy. That would seem to be a clear-cut, if modest, early validation of the social advertising thesis.

(MORE: Why Facebook’s IPO Matters)

Paid media vs. owned media vs. earned media. The study differentiates between three types of marketing on Facebook, as follows:

Brands use display ads and other paid media (Paid) to attract Fans to the Brand Page (Owned), which serves as a platform for marketing communications that reach Fans and Friends of Fans (Earned) in the News Feed and other sections of the website.

Historically, many online advertising campaigns have been measured through paid advertising “click-through rates,” Lipsman says, which is simply the number of times an ad is clicked per 1,000 impressions. (An “impression” is a single ad appearing on a web page. In traditional online advertising, the cost a marketer pays to display an ad is measured per 1,000 impressions (CPM).) But Facebook is “a medium where click-through rates are known to be lower than average for many campaigns,” according to the study.

In contrast to paid media, earned media is a message — or impression — sent to you by a brand you’ve “liked,” which typically shows up in the news feed. The key question, according to Lipsman, is this: “What is the behavior as a result of just the impression and not the click?” Unlike traditional web publishers, Facebook’s ad effectiveness is better judged on the basis of the “behavioral lift” from the message a user has received after they’ve already liked the brand. That, after all, is what most clearly differentiates Facebook ads from traditional online advertising.

The goal is reaching what Lipsman calls a “qualified audience” — people who are more likely to make a purchase as a result of being exposed to a Facebook ad. In that sense, Lipsman says, Facebook advertising is similar to television advertising, where the goal is to create a positive association with a brand in the mind of the consumer, one that makes that person a more likely buyer.

(MORE: Facebook IPO Furor: Feds Probing Deal Over Insider Bank Warnings)

Virality is key. A crucial component of Facebook’s value proposition is the sheer scale of the social network, which boasts nearly 1 billion users — something that Facebook COO Sheryl Sandberg has repeatedly emphasized. “If you’re an advertiser, you can leverage fans of your brand to reach friends of fans,” says Lipsman, who calls this the “Birds of a feather flock together” effect. For example, fans of a brand might be two times more likely to make a purchase, but friends of fans might be 1.5 times more likely to do so. “Amplification” is the key dynamic here:

The idea behind amplification is that Fans who are reached with brand messages can also serve as a conduit for brand exposure to Friends within their respective social networks… Due to factors like Fan Reach, the average brand message from the Top 1,000 brands on Facebook is able to deliver an actual amplification of 81x if their efforts are maximized. In practice, while organic virality at times falls short of this ideal scenario, brands are often able to double the reach of their Page Posts through Friends of Fans.

Take Starbucks and Target: “In the case of Starbucks, exposed Fans and Friends of Fans showed statistically significant lifts in in-store purchase incidence for each of the four weeks following earned media exposure,” the study found. “This same latent effect was observed in the lift in purchase incidence among exposed Fans and Friends of Fans of retailer Target.”

It’s still early. “We’re still in the early days of proving out this medium,” says Lipsman. “We’re literally learning new things every month.” Likewise, social media marketing measurement is still in its early days, and much more research is needed. “Despite significant recent advancements in social media measurement, the collective understanding of this dynamic and emergent marketing channel is still in its nascent stages,” the study concludes.

As a whole, the study should be encouraging for Facebook. As someone who has never clicked on a Facebook ad in five years, I was skeptical. But the study contains empirical evidence showing that certain kinds of Facebook advertising, particularly earned media, can be effective. And as Lipsman points out, it’s still early, which suggests there is substantial upside potential for Facebook’s ad business. With nearly one billion users, Facebook has achieved massive scale, and thanks to “amplification” across such a huge network, marketing messages can spread to a degree unprecedented in the history of online media. Against the backdrop of a pretty dismal few months, that’s something Facebook can look forward to.

21 comments
mytestbuddy
mytestbuddy

As CEO of http://mytestbuddy.com, an educational e learning start up I have used Facebook as a tool to communicating with students and reaching out to newer markets. Every time I create a facebook campaign ( ,lets of 10$ a day,) I get almost 100 - 200 Likes per day on my facebook page and few extra hits on my website. But Of lately I have seen Completely Useless crowd coming to my website and the likes that I get on my page are completely bogus most of them are inactive and never respond to any of the activities that I engage in. Even When I am doing targeted advertising on facebook, Like my target group is only iit students( best tech colleges in india) even then I get likes from people who are not even remotely related to the target group and many a times I get likes from people completely from a different age group. (ie if my target group is 25 - 27 then I get likes from people of age group of 45- 55) 

I have a feeling that facebook is getting paid likes which are completely bogus and I believe just to complete the budgets facebook is indulging in malpractices.

My question is that is it worth advertising on facebook???? I believe that even though facebook has great penetration into market, because of its malpractices it ill spiral in a downward turn

noahknos
noahknos

facebook is just another marketing tool. companies still need to know how to use it effectively

terranovax25
terranovax25

 I use AdBlock and FlashBlock to get rid of most of Facebook's ads. As for the rest, I purposely ignore them and if I inadvertently see the ad, I do not buy items from that store...period. I also clear my cache to destroy Facebook cookies so I won't see something that I've looked at on a site, follow me around the net.

So if you advertisers are reading this, you're wasting your money with me, I won't buy things from your store.

Greywolf72
Greywolf72

I ignore all on-line ads.  I click off all Facebook ads and check "Not Interested". I use AdBlock, too.

Frankly, I'd rather pay a small subscription (say a dollar or two a month) to be on a social network. But I would also expect far more control over access to my page(s) than Facebook offers.

However, I do spend a great deal of time researching on-line when contemplating a major purchase ("major" as in importance, not price). I am seriously annoyed by websites that try to advertise their products to me with fancy videos and music and suchlike crap. . Hey, doofuses, I'm already interested. I don't want persuasion, I want data, OK?

Kingcrabby
Kingcrabby

The empirical evidence does not establish cause and effect.  We tend to be friends with people that have similar habits and tastes.  Is the higher spending by friends of "Fans" at Amazon, Best Buy, and Target a consequence of the "Fans" shopping there or simply because "Fans" are more likely to be friends with people who shop there to begin with?

Kingcrabby
Kingcrabby

 The empirical evidence doesn't establish cause and effect.  We tend to be friends with other people with similar habits.  Is the higher spending at Amazon, Best Buy, and Targets from friends of "Fans" a consequence of the "Fans" shopping there or it is simply because friends of Fans are more likely to shop there to begin with?

miakotamatsue
miakotamatsue

From a user perspective, I hate ads on Facebook.  It's look like Spam because it's everywhere and I treat it like Spam.  And like all Spam, I ignore them on Facebook because I'm afraid it may lead to scams and/or more Spam.  What's even more annoying is that some of my friends will start to Spam also with their personal side business/hobby.  The female friend with her makeup business.  The male friend with his photography hobby and trying to make buck off it.  Then, there are friends who constantly link or post articles that they find interesting but I find it quite irrelevant and boring.  So, I decided almost a year ago to delete my FB account altogether and I can tell you that it has not affected my life.

The 1 billion users statistic has been used a lot especially to valuate Facebook.  I think that is highly inflated.  In addition to tons of Spammers who have multiple accounts on there and whose only purpose is to spam users on FB, I have friends and families who have multiple accounts on there. My young nieces and nephews and their friends probably have 3-6 accounts on there. I have two, one older one that I created a long time ago and lost the password.  So, I created a new one.

Samantha Blonstein
Samantha Blonstein

The article mentions that people who are fans of companies like Amazon, Target, and Best Buy are more likely to spend significantly more than the general population.  The question in my mind is, does being a fan actually cause this increase in spending or would these people spend more regardless of whether they are a fan, simply because they like the store?  This is certainly a cause/effect question and it's worth thinking about does being a fan actually causes this increase or is it something else too.

Ric Pratte
Ric Pratte

Excellent overview article.

It feels like this is new territory being explored and we just don't yet have it mastered. Social advertising/marketing is different and we're still tuning the best methodology to capitalize on this medium.

Social feels most suited to customer loyalty and repeat buyers. Paid media can help attract new customers while earned can assist with sharing the brand love.

There seems to be too many people wanting to announce social media success or failure when there is still so much to be learned.

Brandon Kenneth
Brandon Kenneth

i don't particularly care for fb... but from just a sensible perspective, I don't understand how companies can buy into the fb positive affect on their companies. Do any users really go on fb with the intent of navigating to corporate pages? I don't... but I don't assert that all users act like I do. Also, once a person likes a company, they can easily hide all content from that company, except targeted, desktop advertisements. However, all indications point to the fact that most people seem to gloss over the ads and basically ignore them.

I expect that within 2-3 years, the conclusion will be that FB is not a good ROI for companies. Nothing beats the old word of mouth effect.

Sanket Patel
Sanket Patel

Social media advertising is very effective as we know but how we can present our adds that matter more.  According to my experience in business Face-book add can work because i am also use facebook for advertising  products and promotions of new plans. 

Daniel Romano
Daniel Romano

There is a huge opportunity with Facebook advertising yet to be discovered. The lack of good tools and expertise of advertisers are having a huge impact on the low performance.

Most of the campaigns are managed by people whom don't have the right skill set or advertising experience to create positive ROI campaigns and that is one of the main reasons why we hear so many complains.

Big platforms developing unique technologies are achieving amazing results, and it's only the beginning.

I think that one of the main problems is that creating a Facebook advertising campaign seems to be simple, so many people who don't know how to do it right, will still try and feel frustrated after seeing low performance.

Dennis Yu
Dennis Yu

I think the key problem is there isn't a measurement framework yet to measure social effectiveness. We know word of mouth marketing works, it's just so hard to quantify. This problem existed before the internet.

cartchris
cartchris

And now after you've paid Facebook for ads to get people to like your page, you then have to pay Facebook more money to get Facebook to show your posts to the majority of users that you already paid ad money to get.  

It's frustrating having spent a few years building up (and paying to do so) audience to now have to pay more money to reach them.

Elliott Hinson
Elliott Hinson

Facebook isn't even a product, it doesn't even physically exist

josephmateus
josephmateus

Mr. Sam Gustin, you should really be totally ashamed of yourself. How much did Facebook paid you to write this piece of garbage? The fact is that nobody ACTUALLY knows how efficient advertisement is in Facebook. You even quote ad industry analyst Andrew Lipsman in your article admitting that: > ¨ Historically, many online advertising campaigns have been measured through paid advertising “click-through rates,” Lipsman says, which is simply the number of times an ad is clicked per 1,000 impressions. (An “impression” is a single ad appearing on a web page. In traditional online advertising, the cost a marketer pays to display an ad is measured per 1,000 impressions (CPM).) But Facebook is “a medium where click-through rates are known to be lower than average for many campaigns,” according to the study . Further, Mr. Lipsman says: >“Despite significant recent advancements in social media measurement, the collective understanding of this dynamic  and emergent marketing channel is still in its nascent stages,” >unquote.

A lot of other articles conclude that advertisement is not efficient on Facebook, because users are too busy contacting and writing each other therefore they either don´t notice or do not pay attention to the ads.

Therefore, contrary to your rosy Pollyanna Snow White amp; Seven Dwarfs assertions, he truth of the matter is this: > The context shows us that Facebook has lost 50 billion because businesses pulled their ads after noticing no increase in sales, and will continue to do so as their sales keep stagnant. Now because the market is noticing it, reality is sinking in and Facebook shares are dropping in value big time. Now this are the facts, and this real context Facebook shares have nowhere to go but down, down, down in value. Facebook itself has no physical tangible intrinsic value, its just a web site in the Internet like thousands of others. Surely, it boast almost a billion members, but the bottom line here is that these members go to Facebook to chat and interact socially, not to look at any ads. What is happening is that shareholders are realising that without ads increasing sales for advertisers, there will be no more advertisers, no more revenue, as all of Facebook profits come from advertisers. Now with advertiser after advertiser pulling their adds from Facebook, the whole Fcebook is nothing but a castle built in the sand.

I myself and countless other friends also use Facebook, and we never noticed any ads at all on the web site, we don´t know where they are and don´t want to know. The bottom line is that contrary to your rosy positive spin, heck NO, these studies are NOT encouraging at all to  Facebook. RATHER, THEY CREATE DOUBT AND UNCERTAINTY, and that is what markets and investors hate the most. Investors who have millions and hundreds of thousands of dollars invested in Facebook are getting very nervous with all the ambiguity, instability and uncertainty regarding Facebook´s profitability, because there is no solid evidence that Facebook revenue in ads are real and concrete. In such A PRECARIOUS DUBIOUS INDISIOUS SITUATION, even you would pull your money out instead of sticking around to find out where the bottom is after you lost all your money invested in Fcebook shares.

 Therefore Mr. Sam Gustin stop your darn nonsense about Facebook future looking encouraging. That is a bunch of crap, and you know it, but unfortunately some people will write and do anything for a buck.

Santa Marta, Colombia

Jamie Wong
Jamie Wong

So to be successful, a company first has to get people to "like" his brand.

NStat
NStat

heh, adblock

ElsiecmqCahill
ElsiecmqCahill

like Tiffany said I'm impressed that some one able to get paid $9766 in one month on the network. have you look this(Click on menu Home)