"We want the whole world to use Facebook to share and connect," says Facebook COO Sheryl Sandberg in her cover story in the new issue of Bloomberg Businessweek.
She also wants brands to be part of that equation, as advertising is the key driver of monetization and growth as she scales the site and prepares for what's bound to be a landmark IPO in the next year.
With Facebook's user base booming, but the site's execs still figuring out the privacy balance of exposing what it calls a user's "social graph" to targeted advertising (from turning user activity into ads that may eventually appear on other sites, to brand-driven check-ins and now its latest foray: brand-tagging in photographs), the cover story is a must-read for anyone trying to learn from Facebook's ad strategy and business model, particularly "social ads."
According to the article,
Webtrends says that only around half of one percent of people who see these ads actually click on them; yet Facebook pulled in an estimated $2 billion in sales in 2010, Bloomberg has reported, and is on track to do twice that in 2011. Facebook executives argue that the click-through numbers are not that meaningful; they say that people remember ads better and are more likely to make purchases when their friends endorse products.
Advertisers appear to be buying that logic. The social network now serves up nearly one-third of the display advertising that Internet users see in the U.S., according to comScore, and delivers twice as many ad impressions as its closest rival, Yahoo! Sandberg wants to let advertisers burrow even deeper into the social fabric of the site.
Earlier this year, the digital and social analytics tracker Webtrends estimated that it costs $1.07 to convert a user into a “fan” on Facebook, after a survey of 11,000 Facebook ad campaigns in the US.
Critically, however — for Sandberg's strategy, and for Facebook's brand advertisers' hopes — click rates in the US are actually falling as users ignore ads more, or find the design and function stale. In 2009, the click-through rate was .063%. By 2010, the rate declined to .051%, Webtrends estimates.
Concurrently, ad rates are rising, from 17 cents per thousand (CPM in web-speak) in 2009, to 25 cents in 2010. But for now, that $1.07 cost of the social plug-in is worth the price as it gives brands direct marketing access to customers.
This is just the first step of savvy FB marketing says FB spokesman Brandon McCormick. “On Facebook, the magic of marketing happens when brands activate their fans in ways that inspire people to share those messages with their friends,” he told the Wall Street Journal.
Building on a fan base already installed has the best chance of ROI says Justin Kistner, Webtrends’ senior manager of product marketing for social. “There are a lot of studies trying to say how much is a fan worth, but the answer depends on the kinds of campaigns you are driving at that fan base.”
According to Webtrends research, Facebook ads targeting friends have three times the life of standard ads as new fans keep joining, adding potential new customers; interactivity varies with age, “The older we get, the more we click,” the survey notes, adding that there’s a falloff, however, after age 65, while women and men click at pretty much the same rate.
“There is a competitive advantage to starting now,” adds Kistner. A strong FB install base today puts brands on the leaderboard and will save them money going forward.
As for the next steps in Facebook's brand-driven growth strategy, and as users ponder new features such as photo-tagging, the Bloomberg Businessweek story offers this glimpse of the growth potential as it gets more sophisticated (though some users might feel "more devious") about integrating brand partners into user activity:
When a user checks into a restaurant using the Facebook app on their mobile phone, or leaves a comment on the profile page of an advertiser, that action gets broadcast into friends' news feeds, where it can get lost in the clutter. A new tool called Sponsored Stories allows advertisers to pay to turn that member's action into an ad, which is more likely to be seen by the user's friends. It may sound obscure, but if you're an advertiser, there's nothing better than converting customers into unpaid endorsers. [Indeed, early returns are positive.]
Michael Lazerow, chief executive of Buddy Media, which helps brands advertise on Facebook, predicts that the largest advertisers will cross the $100 million spending threshold on Facebook this year. "The ones who were spending zero last year are spending millions this year," he says. "The ones who were spending millions are spending tens of millions."