Suddenly, Facebook's Advertising Problem Is a Problem
Less than a week before Facebook starts its IPO roadshow on Monday, advertisers have started to figure out that Facebook's ad strategy isn't all that strategic. The social network has used its huge 800 million-strong audience to lure advertisers, but these companies want more than the feeling that "engagement," "sponsored posts" and "likes" work. They want metrics and results -- something Facebook can't and doesn't measure. And that's becoming clearer to advertisers, who have started questioning Facebook's ability to bring in customers. This comes at a particularly bad time, since Facebook will seek a $100 billion valuation on Monday, which The Wall Street Journal's Suzanna Vranica and Sayndi Raice say is 33 times their current ad revenue. Ad growth is kind of (very!) important for the overall business. And just when it needs to prove it has a viable business strategy, the very source of that business has doubts.
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Facebook has two kinds of frustrated advertisers: those who want metrics and those who want attention. "The question with Facebook and many of the social media sites is, 'What are we getting for our dollars?'" Michael Sprague, vice president of marketing at Kia told Vranica and Raice. "[If] a consumer sees my ad, and does that ultimately lead to a new vehicle sale?" Facebook relies on a "trust me" mentality, luring advertisers with its big, addicted audience. But, these companies have started getting antsy. The more money they pump into this murky "money-maker" the more they want to know what its getting them. "Clients, for the very first time, are starting to question the measurement issue" Martin Sorrell, CEO of WPP, an advertising and marketing firm said at a conference, note Raice and Vranica. "[They] are increasingly starting to look at the value of those investments," he continued. That's a very hard something for Facebook to provide. Ad clicks don't necessarily translate into direct sales.
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But these advertisers should feel lucky, because there's another set of angry businesses: ones who want attention Facebook can't or won't give. "For the longest time, we've been trying to call Facebook to do business with them and there's nobody to pick up the call," Mike Parker, president of ad firm Tribal DDB told CNET's Paul Sloan. Sloan also points to other companies that have tried scaling up their contracts, whom Facebook has ignored. "They're very focused on the consumer experience, and less focused on revenue and working with advertisers," continued Parker. "The problem is that Facebook isn't willing to do anything different for the client that wants to spend $10,000 versus $10 million," added David Smith, the CEO of digital agency Mediasmith.
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This attitude -- the unwillingness to cater to advertisers, the focus on the consumer -- is a direct result of that Mark Zuckerberg hacker way, which focuses more on the product than the business side of things. Beyond flat out ignoring interested clients, the social network doesn't exactly bend over backwards for advertisers. The company often chooses user experience over appeasing these business partners. So Facebook doesn't allow third-party surverys of ads tagged with cookies -- things that would scare (ah! privacy!) or annoy users. The social network also has actively protected user data from advertisers, say Vranica and Raice. "Facebook has alienated some advertisers with what they perceive as a highhanded attitude that implies that marketers have nowhere else to turn. Some media buyers and advertisers said Facebook has stymied their attempts to get more ad measurement, for instance," they write.
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But, advertisers want this information or some way to track the effects of "liking" and brand pages. Last year, in an attempt to quell these fears, Facebook started working with ComScore and Nielsen to provide some metrics. And, yesterday, note Vranica and Raice, eMarketer released a study finding 84 percent of executives polled said Facebook "had boosted the effectiveness of sales and marketing efforts." (Though, the report also said: "While measuring followers and Facebook 'likes' provides marketers with a hard number, no one yet knows how those numbers translate into a quantifiable return for brands.")
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For now, Facebook's big audience has been good enough to keep companies interested. "The area is a very sexy area, and clients have gone in almost willy-nilly, because it's fashionable to do so," noted Sorrell. But just last quarter we saw a 7.5 percent dip in ad-revenue over the last three months. These aren't good things for advertisers (and investors) to start noticing, with its big public debut coming up within the next month.
