Facebook Needs To Take Marketing Seriously

My colleague Melissa Parrish and I have been thinking about the Facebook IPO. Our thoughts:

The world’s biggest social network will complete its initial public offering in a few days, with a valuation based largely on its strong history of innovation. But we have to wonder: Will Facebook ever focus any of that innovation on helping marketers?

After all, Facebook is fantastic at introducing great new features and services for its end users. The moment another social tool gains the interest of enough users – whether it’s Twitter’s rapid public chatter or Foursquare’s location-based check-ins – Facebook updates its own site to offer similar features to its legions of users. We’ve rarely seen a company borrow from its competition as quickly or as well as Facebook. And that focus on better serving end users has seen Facebook grow quickly over the years, even in the face of consistent privacy concerns.

But as good as Facebook has been at evolving to serve consumers, that’s how bad it’s been at serving marketers. In the past five years Facebook has lurched from one advertising model to another. Remember when the site charged marketers to host branded pages? Or when every page featured banners from MSN’s ad network? (You may choose to forget Facebook Beacon; Mark Zuckerberg would certainly prefer you did.)

Somehow Facebook still hasn’t stumbled upon a model that’s proven consistently successful for marketers, or that brings in the massive revenues to match the site’s massive user base. (The company made less than $4 in ad revenue per active user in 2011.) And its latest ‘big marketing announcement’ in February turned out to be mostly a tiny evolution of its existing ad model. At the same time, Facebook often stands directly in the way of marketers’ efforts to measure the performance of their programs.

The result? One global consumer goods company told us recently that Facebook was getting worse, rather than better, at helping marketers succeed. And companies in industries from consumer electronics to financial services tell us they’re no longer sure Facebook is the best place to dedicate their social marketing budget – a shocking fact given the site’s dominance among users.

The reason, of course, is that Facebook just doesn’t pay nearly as much attention to marketing as it does to user experience. (Not surprising, given its founder’s famous loathing for advertisers.) If Facebook did pay much attention to the marketers who handed it billions of dollars last year, and who make the site’s very existence possible, maybe we’d see innovative new marketing solutions every six months rather than every few years. Perhaps the company would’ve spent a billion dollars on an ad exchange or marketing measurement tools rather than a simple photo-sharing app. Maybe, just maybe, marketing on Facebook would actually work.

But marketing on Facebook doesn’t work very well, and marketers can’t count on things improving anytime soon. We wish we could predict this IPO would serve as a new beginning for Facebook’s marketing offering, and that a new focus on becoming a grown-up business would inspire the company to put even half the energy into serving advertisers that it does into serving users. But we doubt Zuckerberg’s going to wake up any day soon having acquired a taste for advertising, or even a proper understanding of it. And so every day more smart marketers are going to wake up and look for other places to dedicate their social resources.

Comments

Don't expect a change

If there is one thing the Instagram acquisition confirmed, it its that Mark Zuckerberg pays no attention to what others think. He listens, he does learn, but he does not consult with others before acting.

I agree with you that he's not focused on the needs of marketers. There is enormous growth potential here, but they are not positioned to tap into it.

Unless a new revenues stream materializes out of thin air, this is their biggest challenge in the next three years.

Make Facebook Compete

The FTC/SEC should absolutely block Facebook from buying one of its strongest competitors -- Instagram. Instagram is a photo based social network that now has 40,000,000 users. its one of the strongest competitors facebook has seen to date. Facebook has network effects. Without network effects Mark and Co. would have had strong competition a long time ago. Instagram is one of the few companies that found a hole in Facebook's armour through its early jump on mobile platforms. It would be a shame to simply watch Facebook buy away the competition. Do the right thing FTC/SEC and block the buyout. Make Facebook compete.

Glad to hear it!

Wow, interesting how different people can have such different perspectives! Social networks can be something more than affiliate marketing schemes. Facebook has the potential to totally disintermediate advertising, and that is more exciting than turning it into a yet another tired, old, ad dependent system. Glad to hear you say Zuckerberg is hostile to advertising - I hope that means the infusion of ads into user streams on mobile will not be as foregone a conclusion as Sandberg seems to say in the IPO road show video.

Will there be a Facebook "Big Bang?"

Will the day come when Zuck wakes up and decides it's time to make money rather than simply expand his user base? Or will he use his new found capital to keep growing the network rather than his revenue? It wouldn't surprise me if he pulls a Bezos -- he builds a company that investors love but which doesn't make much money.

Unfortunately, investors eventually (and this day will come for Amazon) will look for earnings to justify the stock price. It could take 20 years, but that day will come. Examples: Yahoo and eBay.

Yes.. and why has Yahoo

Yes.. and why has Yahoo failed? It forgot about the users. Here is an interesting read on how Yahoo stuffed up with flickr.

http://www.gizmodo.com.au/2012/05/how-yahoo-killed-flickr-and-lost-the-i...

Facebook is focused on the user experience

... and that's not a bad thing vs. ad monetization.

I was on a panel with buyside investors two weeks ago where a senior person from a major agency told the group that Facebook had turned away millions of dollars in ad revenue from them (I asked "was it because you wanted them to allow you to do a homepage takeover?") - true or not, we've seen them definitely pass over opportunities of the "Times Square Billboard" variety and I hope they will continue to do so.

I told the assembled group of investors I thought Facebook didn't really care that much about ad revenue today (that will change), and that should make investors nervous. It also may not matter from a stock price perspective (again, that will *at some point* change, just not soon).

We have marketers for whom Facebook works like gangbusters. We have also seen brands think they've tried Facebook, been there and done that and say that it doesn't work for them. Nonsense. We're early on in this game - we're seeing many customers investing 2x to 20x versus what they did last year. Obviously, we have a business as a Facebook Preferred Marketing developer that exists because companies need enterprise-level tools to make Facebook advertising work for them. There's increasingly features in the Facebook API that are not available via their self-service tools, and companies like ours are helping to mine the data and insights available to help companies make social a successful endeavor.

Facebook is less a publisher and venue for ads, than an "audience operating system" for the web and mobile. Be cautious of over-ascribing its valuation to today's ad products. They have to do more to help marketers, that I agree with, and believe that companies like ours and other developers will be a big part of that. We work and have worked with all the major ad players like Yahoo, Google and others, and Facebook's pace of innovation, testing, and approach to releasing new ad products and tools in this space is unprecedented. They haven't figured out their monetization silver bullet yet. Watch out.

'Better marketing' isn't the same as 'more marketing.'

Thanks for the comments, Rob. I agree totally that it's good Facebook is looking out for user experience - but to position user experience and ad monetization as necessarily opposing forces is to create a false dichotomy. Facebook can surely improve value for marketers without turning the site into Times Square.

The situation's screaming out for genuine innovation - not just dumping ads into newsfeeds and onto mobile devices, or running homepage takeovers, but actually figuring out new ways for brands to interact with consumers. But yet for all the talk, they're barely even trying. And not only are they not putting enough resources into helping marketers directly -- but they're keeping those marketers from customizing their pages too heavily, and preventing them from measuring the impact of their pages properly, as if to ensure that clients can't learn and innovate on their own either. (Remember how Facebook asked its users to help translate the site into foreign languages? Why not use the same crowdsourcing approach on the marketing side?)

But you're right - when Facebook finds a monetization silver bullet then watch out. And maybe Zuckerberg's figured out that he doesn't actually have to try - that they've got enough marketing momentum to keep those revenues growing for another couple years without actually making it work very well, and that'll be long enough for firms like yours to crack the code on Facebook's behalf. If that is the case, though, I think they'd better at least turn over a lot more control and measurement in the near future; you can't test and learn without flexibility and metrics.

Your tone is pretty negative

Your tone is pretty negative - curious if they've briefed you under NDA on some of the stuff they have coming up (though I guess perhaps it's a double secret NDA)? Not buying any of it eh? I think this is going to be a ridiculous offering and the stock will ride high for some time to come.

You may be right

But as you know, Forrester doesn't make calls on stocks. At the end of the day I'm not trying to figure out whether investors should place a bet on Facebook, I'm trying to figure out whether marketers should place a bet on Facebook.

Two final points I"ll make

Two final points I"ll make here:

1) Don't think of Facebook as a marketing platform, think of it as an "audience operating system". Ads are one use case of that because people typically want to buy based on some audience-related attribute.
2) The biggest problem with marketing as-it-exists is that most companies are not set up to test things, nor to have daily interactions with their customers. That will change, but probably not right away. We have a couple of customers who manage every "media buy" via an agency EXCEPT their Facebook media buys. And they are spending money every single day, in the absence of "campaigns" and they are learning a LOT about what messages work and don't work.

On (2), watch AMC's "The Pitch" for an example of what I mean. You don't see any of these guys going to the client and saying "We have 25 great ideas. We don't know which one or two or three are the best, but we'll test them for you for $10k before you spend $1mm on a campaign around them. Whaddya say???" They come up with one idea, one pitch, one message, one size fits all. This will change - that much is inevitable- the when and how, is not clear.

Facebook has a couple of options...

I figure that the opportunity to grow FBs user base is dwindling at this point; they need to focus, as you say, on increasing revenue per user. And that, to me, suggests two viable options:

1 - They can provide hyper-targeted advertising solutions to all advertisers (not just their preferred partners). The downfall here is that Facebook can't afford to police or advise EVERY advertiser on the best practice uses of microtargeting, which means that they'll invariably end up with folks who cross the line. And that opens them up to massive user backlash. If they go this route, they'll need to invest in a service model (which I don't think they know how to do*), and they'll need to get a hell of a lot more transparent with their privacy policy and practices.

2 - They create a subscription-pricing model that lets users REALLY lock down their data, and opt-out of advertising completely. In one fell swoop, even if they converted only .5% of their userbase to paying accounts at, say, $5/month, that's nearly a quarter billion dollars in incremental revenue.

Obviously, these aren't mutually exclusive scenarios. In fact, they sort of feed each other rather nicely.

Will users pay to opt out?

Our surveys in the past have indicated that while users don't love advertising, they're also not usually willing to pay to avoid advertising. They'd rather take the trade of free content for marketing impressions. Still, worth a shot on the paid opt-out, even if they had to price it as low as $1/month. As I say in the main post, by my math they made less than $4 per user last year - and reports say that number is sliding: http://techcrunch.com/2012/05/12/mobile-facebook-and-google-cant-live-wi...

The other potentially huge option is to use that data to power better advertising elsewhere. That'd allow them to keep FB.com relatively 'clean' - running a relatively low level of advertising and focusing on engagement tools (like better-performing branded pages and apps) rather than reach tools (like all those little banners and sponsored stories). Facebook changed their user policy last week to allow them to do this: http://www.ianschafer.com/2012/05/13/is-this-the-beginning-of-facebooks-... (And while former Googler Ari Paparo correctly notes on that link that Google only gets a fraction of its revenues from this business model, Google still made more than $5b in 2011 from display ads like the ones Facebook can now run -- which is more than Facebook's entire revenue over the same period.)

If I were Facebook...

I'd leverage my hefty platform capabilities and leave users to enjoy their friends and family.

Self serving plug: as a team member at Lithium, I rather enjoy Facebook's short sided view of the marketer.

Great post.

Generalisations

"But marketing on Facebook doesn’t work very well"

Your own post that this claim links to suggests that where marketing on Facebook doesn't work, it's because they're "too unfocused, too under-resourced, and don't make enough use of the entire platform."

With this argument, one could equally argue that marketing doesn't work on Google/Yahoo/TV/cinema/insert medium here. But that wouldn't have been controversial.

You make some decent points about Facebook's focus on users rather than advertisers (though some would argue that's why they still have that audience of users), but sweeping generalisations such as this tend to lessen the impact of your point.

Plenty of evidence

Thanks Ciaran -- and yes, the marketers on Facebook need to do better too. But as we state pretty clearly in this post and in the previous ones to which we link, Facebook shares quite a lot of that blame. The fact is that even marketers who do put the right focus and resources into their Facebook plans find that Facebook still puts up lots of roadblocks to success.

And if you're looking for detail on this problem, there's plenty to be found. Among lots of other studies, Syncapse reports that user interaction with branded Facebook pages is down 22% (http://adage.com/article/digitalnext/things-mark-zuckerberg-cmo/229293/) while Webtrends has reported significant long-term declines in the performance of paid ads on Facebook (ie http://www.slideshare.net/clickcommunity/facebook-advertisingperformance). And those problems only cover the shallow digital behavior metrics that Facebook tries to focus its advertisers on - marketers still aren't able to measure deeper marketing success metrics in most cases.

Lies, damned lies and..

So, a couple of thoughts:

* User interactions with branded pages down? Doesn't surprise me - there's a lot more happening on Facebook now, so the days of posting a competition and getting tons of likes are gone. Does this mean the platform is failing, or evolving?
* Long term decline in performance? Well, we manage a lot of accounts, and many still work pretty darn well, holding up against some of the major performance networks.
* Marketers still aren't able to measure deeper marketing success metrics in most cases. True, but, again, I'd argue you could say the same of almost any medium where clients or agencies don't invest in research and analytics. I'd argue that Facebook's partnership with Nielsen shows a willingness to try to find these metrics, something that can't be said of a lot of their competition.

I'm no Facebook fanboy, and have no stake in the company, but think that a lot of your arguments could be made against many platforms, and deserve balancing out.

Another take?

Nate, Melissa,

I hope you both have a chance to read our CEO Michael Lazerow's post about Facebook advertising in Fast Company: http://www.fastcompany.com/1836466/the-truth-about-facebook-advertising

Since data was listed in the last comment, I'll add some recent data as well:

Nielsen last quarter released results from 79 Facebook ad campaigns, and on average, Facebook’s social ads had 55% higher recall than non-social ads.

ComScore has released data that shows Facebook fans spend more than customers who are not Facebook fans. In Starbucks’ case, that number is 8% more non-fans who were also Starbucks buyers.

As our CEO said in his Fast Company post, "In order to succeed, companies need to organize internally and optimize content to get the right message to the right people at the right time. If the advertiser isn’t organized to connect with people and publish the right content, failure is inevitable. No wonder some brands continue to ask what Facebook is doing for them. In reality, these brands should be asking what they can do for people. Criticizing any platform is easy. Much easier, it seems for many advertisers, than organizing internally and publishing compelling content."

But what about the small guys

What about the small businesses that gain awareness through Facebook Ads and who don't pay millions of dollars? Does your reasoning still apply? What is the percentage of the money Facebook makes that comes from big ad payers vs small accounts, anybody know by any chance? I serve that market and I have trouble with the different figures being passed around in terms of engagement and ad performance. Any body know anything about the small business side of things? Would love to hear your take on it!

Lot of discussion over .05% of a media budget

meh.

Love the Gary Stein comment

Mister Stein, I do so miss our chats - whatever happened to that call-in radio show we were going to do together? I'm still game for it - you, me and Elliott, whaddya say?

I think what Gary's trying to say...

...is that Facebook isn't the only social media available to marketers. Which is a great point, Gary.

Definitely my point

In fact, Facebook is far from the only place to spend your online ad dollars. Seriously: GM is shifting a marginal number of dollars away from an underperforming (for them) site. Maybe GM is absolutely killing it on some other site or network. Or through retargeting (probably). The only reason this is new is because said-underperforming-site is fixing to go public. In fact, there are probably some investors somewhere rubbing their hands together in delight. If enough people begin to cast some doubts on the viability of Facebook's ad model, their stock's essentially-guaranteed meteoric rise may just be delayed long enough for them to buy low(ish).

absolutely!

Let's do it. Nate--you are the one with the star power. Hook it up!

Facebook ads work if.....

Too many of the companies complaining about Facebook ads aren't using them the correct way. Facebook ads can be targeted with amazing granularity. If you are GM or Coca-Cola this is a negative because you are trying to reach a very broad audience. If you are a wedding photographer in a suburb of major city and target fashion conscious brides, who have a college degree, are 22-35, and got engaged in the last 6 months and live within 10 miles of your studio than Facebook is your only option to target that specifically.
You also need to be very good at converting those leads once they click on the ad. This may mean creating a different landing page for every ad or at the minimum every ad campaign. If the ads aren't performing well it may not be the ad, it may be crappy conversions on the clicks from the ad.

Facebook ads work and I know they work because I personally know people making several thousands of dollars of additional revenue a month that they weren't making before they started using Facebook. I think many marketers complain about Facebook because that is easier than building better campaigns that are more suited to Facebook's platform.

Facebook's UNSCRUPULOSITY in displaying 9 ads per page

Bolstering its own revenues by displaying 9 ads per page is not a good long term strategy to retaining advertisers and helping them achieve actual ROI.

more details on actual metrics, how they compare with search ads effectiveness, and other historical examples

THE Facebook Ad Scam by Dr Augustine Fou http://slidesha.re/JdxVPQ

Facebook and GM

Nate -

In a culture where everyone wants instant gratification, here is just another example of how people using Facebook don't have a clue. Would a company that just hired a new sale rep, fire that same sale rep after a few months because they were not bringing in "massive revenues"? Get real. The success of Facebook is a great multichannel, integrated marketing plan where the KPI's are clearly defined and are appropriately measured. The key is not just PPC but also building influence through content and community and brand awareness. These are strategies that take time, thought and someone that understands how to execute them correctly.

Facebook is not getting worse, it is getting more sophisticated just like any other marketing channel. Our clients are seeing success with Facebook and understand the global reach that is currently provides. Only 17% of Facebook members reside in the United States, the rest are there for the taking.

A few months?

Kara, I might agree with you more if GM was really 'firing the sales rep after a few months.' But Facebook has been selling ads to marketers for more than five years now. As a quick parallel, five years after Google started selling ads even the least-sophisticated marketers were having wild success on their platform. Today, five years after Facebook started selling ads, we talk every day to sophisticated, experienced marketers who are still failing. I'm happy to give Facebook more time to figure this out - but it's hard not to feel like they've been groping around in the dark for a long time.

But I'm glad to hear your clients are doing well - and I look forward to hearing more about your experiences when we connect. I've heard loud and clear this week that some marketers are having success on the platform - but the large majority of the feedback I've gotten this week (just like the large majority of what I heard before I made this post) is that most marketers are failing on Facebook. The industry-wide data we've seen backs this up. And if Facebook wants to keep taking billions of dollars from those marketers, it's Facebook's job to help them succeed.

Thanks Nate. I was giving

Thanks Nate.

I was giving the sale reps the benefit of the doubt. Based upon their level of experience, understanding of their markets and their networking abilities, their efforts would translate into months rather than years in comparison to 5 years of PPC buys on Facebook!

I look forward to more lively discussions with you on this topic.

Kara

Facebook and Internet marketing

Personally I have not seen facebook as an Internet marketing platform, although a lot of marketers are claiming that they make a lot of money from it, which I think is just hype.

Facebook is a social media, so it's not a good idea to get too involved in it, unless you want to socialise.