500MM Users...So Why Can't They Show You The $$??

I was so glad to read Malcolm Gladwell’s piece in the New Yorker, because as a Facebook bear, I often feel alone in the wilderness.  Finally, I thought, a widely respected contrarian on the topic of social networks!  He says the “revolution won’t happen on Twitter.”  And I say “no one's revenue will come from Facebook.” 

While there is no shortage of bragging about how many people in the world are on Facebook, sadly none of them have generated any significant revenue for other companies. That may very well be The Social Network's bane.  I spend much of my day talking with, surveying and interviewing retailers and the general consensus I hear about social networks is that they just don’t drive revenue.  Nearly 60% of retailers agree that the returns on social marketing efforts are unclear.  Retailers tell us Facebook fans don’t buy after becoming fans, they don’t click on the posts that retailers make, and no one visits or buys from the Facebook stores (unless that’s the only place where your merchandise is available).  I contrast social networks with search, which even 10 years ago was regarded as one of the most effective marketing tactics out there even when few retailers were using it.  The State of Retailing Online Report from way back in 2001 had 88% of retailers saying paid search was effective.  To this day, search continues to retain that honor.  Social networks?  Not so much.  Only 7% of retailers say it’s an effective customer acquisition source.

Several reasons for this: No one is shopping on Facebook. People use Facebook to connect with other friends, not to be shilled to. Fifty-eight percent of consumers say they keep up with friends on social networks, but only 13% of them visit retailer fan pages.  And only 7% research products on Facebook. Facebook is like a cocktail party where brands want to make it a Tupperware event.  There is a reason why most people don’t sell Tupperware, and the more that companies try to get their “brand enthusiasts” to promote them, the faster their friends will avoid them.   Furthermore, when people do “fan” a site, it’s not about a relationship.  It’s to get coupons.  Seriously, read this study by Razorfish (see Q27 and Q30 in particular). 

The net-net of all this: Facebook is going to have a hard time monetizing itself with retailers (including PC manufacturers), which are 30% of the interactive marketing world’s spend.  My suggestion to retailers: Rethink (er, ditch) your Facebook efforts and start thinking about mobile where the ROI is at least quantifiable.