Published October 01, 2012
Facebook Inc, stung by doubts that advertising on the social network delivers enough bang for the buck, is preparing to unveil data to counter its critics and show that "clicks," the current metric of choice, tell only half the story.
The world's No. 1 social network, embarrassed just days before its initial public offering in May when General Motors declared it was pulling the plug on all paid advertising on its network, will argue that big-brand marketers should abandon the industry's obsession with numbers of clicks and focus on more effective advertising techniques.
Fewer than 1 percent of in-store sales tied to brand advertising campaigns on Facebook come from people who clicked on an ad, according to a new study that Facebook has conducted through a partnership with Datalogix, a data mining firm that tracks real-world retail sales.
"We ended up in this world where the click is king," said Brad Smallwood, Facebook's head of measurement and insights, who will present some of Facebook's findings at one of the advertising industry's biggest conferences in New York on Monday.
While designing online ads to garner clicks makes sense for certain types of companies - such as e-commerce firms trying to ring up immediate online sales - clicks are not relevant to brand marketers, Smallwood said.
Through its partnership with Datalogix, Facebook says it can now give brand marketers data on the actual in-store sales that their ad campaigns on Facebook have generated - a more useful piece of feedback than total clicks. Datalogix tracks the relationship between ads on Facebook and real-world spending by compiling consumer purchasing information from retail stores and matching it with data about Facebook ad impressions.
THE SWEET SPOT
Facebook's push to provide marketers with more feedback comes as the company's revenue growth slows and the effectiveness of its ads remains a hotly debated topic. Facebook, whose stock by the end of the third quarter was down 43 percent since its IPO, has unveiled a variety of new advertising capabilities in recent months, including ads designed to be viewed on smartphones.
"Advertisers have been increasingly vocal about concerns regarding effectiveness of Facebook," said Pivotal Research Group analyst Brian Wieser.
Clicks became a metric of choice in part because they had become tied to Google Inc's performance. The world's No. 1 Web search engine offers an effective and easy-to-measure form of advertising because it lets marketers reach consumers at the moment they are searching for a particular product.
If a consumer clicks on the search ad, the job is done.
Facebook argues that for brand advertisers, fine-tuning the number of times a consumer sees an ad as well as ensuring that the ad has reached all of its target audience are far more effective techniques.
According to Smallwood, marketers can increase the return on investment from their ads by 40 percent by focusing on an ad's so-called frequency. Instead of one Facebook user seeing an ad 100 times and another user seeing the ad only twice, for example, Facebook says it will soon offer advertisers' insight on the ideal number of ad impressions for a particular campaign.
"Using the Datalogix tool, we'll able to understand what that sweet spot is," Smallwood said, adding that Facebook will then control how often each user sees the ad.
Many large brand advertising campaigns are not even hitting half their target audience, he said. But ad campaigns that focus on getting the optimal reach are 88 percent more effective at improving their return on investment, Facebook says its studies have shown.
Getting online advertisers to break their focus on clicks will not be easy, but Facebook says the techniques it is advocating are standard in the television advertising world.
Vik Kathuria, a managing partner at GroupM, the parent company of WPP's media agencies, said there has been a longstanding desire in the industry for different ways to measure the effectiveness of online display ads.
The click-through rate "as a metric was probably irrelevant five or six years ago," said Kathuria, who said his firm has talked with Facebook about this.
"What (Smallwood) is doing is what we have been saying all along. Let's talk about bigger brand dollars and in that context how you measure the efficacy, not click-through rates."
Still, persuading the online brand advertising industry to change its habits could take time, said eMarketer analyst Debra Aho Williamson.
"For an advertiser, the click is a powerful indication that somebody is at least possibly interested in learning more about their brand," said Williamson. "It becomes easy to focus on the click as a metric of success."
As Facebook strives to persuade marketers to think differently, it also is attempting to assuage privacy concerns.
Facebook's partnership with Datalogix has raised complaints from privacy advocates, who say the social networking company could be violating the terms of a privacy settlement with the U.S. Federal Trade Commission by not obtaining the express consent of users to share their personal information.
Smallwood said the only information given to Datalogix is that people were exposed to certain marketing messages. He added that Facebook is not receiving any personal consumer information from Datalogix.