You may have been confused if you read this morning’s Facebook headlines. The Wall Street Journal says some big ad buyers are questioning how effective their Facebook ads are, while CNET is reporting that Facebook won't take some advertisers calls when they try to buy ads.
Which report is right? Or are they both right? And does it matter? Probably not, if you’re thinking about buying shares of Facebook after it goes public later this month. What matters for potential investors is that Facebook once again appears to be having trouble demonstrating that it can sustain growth from advertising which, to date, has accounted for about 85% of Facebook’s $4 billion in annual revenue.
But appearances, according to experts interviewed by ReadWriteWeb Wednesday, can be deceiving.
“As you can read many places these days, brands and agencies are griping privately and publicly about a lack of service, but to be fair, Facebook has never said it was a media company. In fact, it seemed as though the strategy in the beginning was less about supporting advertising, as much as maybe enabling it,” said Michael Nicholas, chief strategy officer at Roundarch Isobar.
Nicholas noted that Facebook didn’t seem interested in supporting self-service ads in the way that Google or, more recently, Twitter did. That would distract Facebook from what it sees as its “social mission,” so instead, Facebook published APIs that third parties could build huge tools on top of.
“This is a great strategy if your goal is to remove the burden of directly supporting brands and agencies so you can stay focused on the task at hand,” Nicholas said.
One of those third parties building API ad platforms is Spruce Media. COO Lucy Jacobs said one of the problems is that brands don’t bake social into the brand's core. Facebook recently held a conference in New York to help brands better understand Facebook’s advertising.
“Agencies are used to conversions and clicks, not social sharing or PTAT - people talking about things - as metrics of success. Facebook continues to hold the line that brands can't think of Facebook as a channel you can add on to your ad spend,” Jacobs said. “To be truly successful, businesses need to embrace Facebook and make their business ‘Social by Design,’ and the strategy needs to be focused around a marketing platform focused around word-of-mouth marketing at scale.”
Jacobs’s rationale and thinking is classic Facebook, using its scale to dictate terms. The question is, will advertisers give in and essentially reorganize the way they have done marketing in the past? And how long will investors wait for advertisers to embrace the Facebook way before they dump their shares?
“Facebook’s upcoming IPO may certainly reinforce the importance of brand advertising, as the company will now have to answer to public shareholders. Facebook has been focused on creating ads that keep traffic on site, as well as developing page metrics to help brands evaluate fan engagement,” said Megan Halscheid of Performics, a Chicago-based marketing firm. “Given the IPO, Facebook needs to demonstrate ROI increases to advertisers; as Facebook continues to beef up ad sales, it needs to provide improved measurement to help brands prove their return.
Still, Halscheid said Facebook ultimately needs to keep its 900 million+ users happy, or keeping advertisers happy won’t matter.
Nicholas said many advertisers are pleased with Facebook spending, and the company will likely address the concerns being raised in both the Journal and CNET articles.
“Although some large brands and agencies may be grumbling, not everyone is unhappy. Brands whose business is more performance-oriented and predominantly ecommerce-based, are seeing quality results and good service from third-party companies,” Nicholas said. “In my mind, thinking about it from an ad spend point of view, it’s this ‘vocal majority’ that's what's fueling all the headlines about ‘large brands and agencies question Facebook’s ad model’.”