2007 was the year that Facebook opened up its platform and launched Beacon. January saw a decline in Facebook’s traffic, at least in the UK. This will be the year that the theory behind those moves will be tested, will it be Facebook’s make or break year?
We got a couple of questions from Phil Edwards of Lonely CEO, here are the Q&As:
Question 1:
In Facebook, we’re starting to see Ad Networks and Application Sales Companies come together. Do you think a strong sales relationship can convince buyers to give a new medium a try? Or are more traditional metrics still a necessity for advertisers to be sure they’ll get a good ROI?
Answer 1:
If you want the truth, I’ll go against the grain and let you in on a little secret. Marketers only bring up ROI when they are looking for an excuse to disengage, pause a campaign or not spend money with you in the future.
That’s right: most branded advertisers (this admittedly does not apply with performance based advertisers) understand that a lot of marketing does not generate a positive ROI. In fact, the Web confirms what they have long suspected with print, radio, TV and outdoors.
Indeed, I was sitting at a Paid Content shindig when Tad Smith, CEO of Reed Business Information, said something rather revealing.
I’ll quote from my post covering the event:
For all of the talk about targeted [web] media being preferred comes the flip side, according to Smith:
“If a Chief Marketing Officer can spend $1M on TV, $1M on print and $1M online, but with online you can see that it has a negative ROI, what do you do? What happens when you realize just how much of a negative ROI some campaigns get online. What will that result in? I don’t know.”
I guess ignorance is bliss. He has a good point, but I’d say how much greater of a negative does print, TV or radio “yield”? Of course, you know the expression, if you’re gonna be in the negative, go big!
So my point here is, ROI is awfully reminiscent of that Chris Rock line: “It’s only sexual harrassment if the guy is ugly!” Obviously I don’t want to poke fun (sorry for the pun folks) at sexual harassment, but my point is ROI talk is overrated in the sense that all advertisers know that the short term ROI of all campaigns is negative and the long term of some campaigns might be positive.
Ultimately, companies have to advertise to promote their products. No one really likes advertising, that is why all of these “business ideas” about how much users love brands are more examples of ill-fated projects. Marketers - even the ones with the strongest brands - might get away with not advertising initially, but after a while, they’ll disappear from sight, and out of sight, out of mind. Any marketer who tells you otherwise is squeezing you for more. As a sales executive, you walk into a meeting understanding that dynamic.
So with that out of the way, let’s get to the question and the answer to it which is:
I think Facebook is fundamentally problematic as an advertising platform (as are all social networks). This does not mean that Facebook cannot develop a successful ad sales strategy, but any notion that at present time, Facebook will pose a threat to Google is nonsense. Furthermore, there is very little that justifies Facebook’s $15B valuation but that is moot. That was MSFT’s smart defensive move to block Google for a mere $240M, which is the free cash flow MSFT generates in a week.
Anyway, Facebook’s ad sales problems will be two-fold, mainly.
As a social network:
In laymen’s terms, Facebook is the database of connections (to paraphrase from my earlier post) while Google is the database of intentions (to paraphrase John Battelle). Intent can be monetized, connections can, but they pose a risk.
All social networks are susceptible to raising the ire of users if they try to monetize the connections between users and the data on individual users. But not tapping into that data means that the asset in question is not wringing out maximum value, which makes it less interesting, or in financial terms, trade at a discount.
This is the business challenge for social networks: they’ve raised millions based on the notion that they can untap that value, but that assumption is faulty or incorrect in practice because most users won’t stand for it if you blur the privacy line too much or start to tap into people’s connections to sell them something. Remember that the Web was successful because of its confidentiality and privacy, the second others know I have a condition, or need help with something, etc., it loses value fast and becomes a liability, not an asset.
That’s right folks, many of the social networks are unsellable, in both the income and capital gain sense of the word.
Facebook in particular:
Unlike Myspace, which has become an entertainment platform, Facebook wanted to be a neutral, independent applications platform. The problem is that the apps have hitherto been noisy and useless. I cannot think of too many advertisers would welcome associating themselves with irritating apps. Of course, as games are developed (and eventually useful apps) that will change. The more Facebook develops its platform, the more I suspect that it might become one giant arcade. We see the bullishness around web-based ad-supported gaming, but this remains a concept, mainly due to the fickleness of its users to embrace ads.
Question 2:
Traditionally, buyers have been able to use content as a proxy to or supplement for demographics (eg, if someone buys advertising on Sports related media, they can assume a bit about the demographic and user). Facebook, however, offers a unique opportunity for buyers to canvas large networks purely via demographics. Are these demographics enough to reach users? Or does content/branding of the advertising vehicle still matter?
Answer 2:
This is something I’ve touched on quite a bit.
Bear in mind as a content producer I am biased (when I am not blogging on HipMojo.com we’re producing video content on WatchMojo.com), but I became a content producer because I believe that content is king. Facebook’s problem is that it tries to pretend that media, publishing, and advertising has changed when in fact it has been the same for over a century. It tries to bypass content creation - which is foolish - and instead pass off UGC as premium content advertisers want, which is even more foolish. More here.
his is why Facebook remains a potential Friendster (more here), but we shall see… the company is flirting with “made-man” status. As a leader, Facebook will be fine, though I suspect the $15B valuation will be one of those Broadcast.com $5.7B moments of Web 2.0 lore.
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