Recent news of GM pulling their $10 million in annual Facebook ad spending has raised some eyebrows. The reactions have been a mix of social media marketers defending the platform, citing problems with GM’s management and agency selection, to those that are rushing in to try to expose what may be Facebook’s greatest weakness on the eve of their IPO. The data being cited to both support and attack GM is a hodgepodge of non-standardized social media profile fodder and a lot of stuff taken right out of the Facebook media kit. After all, this is an industry that has blindly accepted proprietary metrics, such as the coveted Facebook “Like,” as an almost undisputed barometer of universal success that justifies almost any resource allocation in the world of co-called “integrated” marketing.
But was GM right to put their money elsewhere?
First, let’s look at the facts. Facebook, in it’s current state, is a poorly performing ad platform just about any way you slice it. A couple years ago, most data showed click-through-rates in the ballpark of .05% and, having seen hundreds of thousands worth of performance data since then, the reality is that it’s probably between .03% and .04% on average today. In fairness to Facebook, this trend is pretty consistent with what most display networks are seeing, including Google, tough maybe not quite to this extent. A bigger problem may be the ad units themselves.
In February of this year, Facebook announced a shift in the kinds of the ads that would be offered. The company is moving away from simple display ads and focusing more on Sponsored Stories. In a nutshell, Sponsored Stories are a way for brands to promote their content on Facebook. That’s right. You’re paying Facebook to drive traffic to – where else? – Facebook!
If you’re wondering why Sponsored Stories even exist, it’s because people don’t engage with brand content on Facebook. Sure, Like numbers are through the roof for many brands and often eclipse what they see in unique visitors to their corporate sites but are those people reading or engaging with your content. Facebook provides this metric to an extent with their People Talking About This number, which is a somewhat misleading way of identifying how many people have engaged with your content in a way that their social graph may have been exposed to your activity. For example, someone hitting the Like button would, for most users, publish that activity to the ticker that appears besides the News Feed. That counts as them “talking about” your content. While people who repost your content or tag you in their own post are included in this number, the overwhelming majority of People Talking About This have just hit a Like button.
The social media marketing community is starting to take notice that some of these metrics provided by Facebook aren’t speaking directly to any kind of legitimate success criteria. Over at Digital Marketing Works, they’re working on a social engagement index that shows engagement as a percentage of a brand’s total fans. When you apply this formula to most large brand pages, you generally find that most brands are averaging engagement rates of around 1.5%. If you take a brand like Home Depot, who generally provides high utility content across all social platforms, you’re looking at a brand that invests considerable resources to engage with about 10,000 of their 650,000 “fans” on Facebook in a good week. If engagement is the real fruit of social media marketing, and I think most would agree that it is, a brand the size of Home Depot would probably have a hard time justifying the resources required to interact with 10,000 people a week.
As real data like this emerges, it becomes pretty clear that Facebook is in trouble as a digital marketing platform. If you compare Facebook to other loyalty or CRM platforms, the results can be increasingly discouraging. Let’s take good old, boring, not-in-the-least-bit-sexy email marketing. Let’s say that instead of trying to secure Facebook Likes, you focused on CPA marketing to get highly engaged consumers into your email database. If you’re able to attract a similar amount of people, a brand like Home Depot might have 650,000 people in their database and, by standard open rates of about 20%, a single email a month could be read by 130,000 potential customers. Compared to Facebook, direct sales links and other pushes towards owned media tend to perform well in email. Using standard engagement rates, Home Depot would need to build their Facebook Likes to roughly 2,112,500 in order to get an equal number of people to engage with their content and chances are that any pushes to owned media off Facebook would perform much worse. Unless Home Depot can start selling Facebook Likes, it looks like they may have better options for their marketing budget.
We’re really just scratching the surface here but you can start to see a few different reasons why brands like GM are taking their ad dollars elsewhere. In the rush to check the social media box for their equally confused CMOs, a lot of inexperienced social media marketers have been following Facebook’s lead and pumping up numbers that are either misleading or don’t directly speak to any reasonable success criteria. Facebook, in turn, is changing their ad platform to focus more on the best performing ads by this same criteria, which is both compromising a positive user experience and pushing brands deeper into an abyss of advertising that leads nowhere.
Luckily for Facebook, they have a pretty good cushion to work with. They have an unparalleled user base that generates an almost unfathomable amount of page views compared to any other online property. Even if advertisers have to settle for impression based ads, there is probably enough inventory to sustain Facebook for a very long time. While their valuation may be suspect, there is enough enthusiasm around their IPO that they will certainly end up with more cash to work with than they’ve ever had before. The company has been forced to evolve faster than any other major Internet brand in the young history of the industry and nothing they have done to date has notably hurt their user base.
The real question is whether or not Facebook will ultimately be a good place for brands. The word-of-mouth potential of the platform is almost completely untapped but, in order for Facebook to sustain their success, they will need to find a better way to measure success and develop advertising products that address the challenges of their brand partners as opposed to just boosting numbers they’ve managed to trick them into blindly adopting.
