Google and Facebook’s battle for eyeballs, talent and advertising dollars prompted us to look at our own data. We looked for answers to questions on everyone’s minds: (1) How does Facebook measure against Google in terms of spend, CPC (cost per click) and other key metrics? (2) What do these metrics tell us about Facebook’s potential ability to grow?

Metrics

 Sid's FB graph

We looked at the Facebook campaigns of many of our clients across several key metrics and have summarized our findings in the chart above.

 Spend

In this advertiser set, the average Facebook budget was 6% of the budget on Google, a figure that, when extrapolated out to Google’s entire revenue base, suggests Facebook’s revenue was $1.85 BN in 2010 (Google’s revenues was $29.32 BN in 2010).  Our extrapolation lends credence to the rumor that Facebook’s revenue was $2 BN last year.

 CPC, CPM and CTR

CPCs on Google and Facebook are virtually identical. However, the CPMs tell a completely different story. On a CPM basis, Facebook ads cost only 5% of that on Google. Put differently, advertisers are able to get 37% more impressions on Facebook while paying only 6% of their Google budgets. 

Our preliminary take

A side-by-side metrics analysis between Google and Facebook on traditional search/display metrics is not appropriate. Google is an excellent advertising medium for reaching in-market consumers who are clearly articulating their intent with their search terms.  Facebook cannot deliver the same kind of user-intent based targeting, at least not today.

Facebook does deliver something Google cannot today: virality.  And it is the power of the viral network effect that makes Facebook so powerful and valuable.  The primary means a brand has to achieve a viral effect is through consumers’ liking their company, products, or even their ads.  The action of liking a brand brings a host of very valuable exposure, data, and communications opportunities including:

a.     A rich data set about their customers and prospects

b.     The ability to communicate to consumers who “like” the brand via ads and regularly published news feed updates

c.     A means of transmitting a brand or product message when the on-average 140 friends are exposed in their news feed to that individual’s “like” or “share” (repeat the same action if any of these friends also like/share)

d.     An expanded advertising target set via the ability to target all “friends of likes” with ads

Despite the obvious limitations of traditional metrics, the signs are highly encouraging for Facebook. The fractional CPMS and huge impression volumes would be very attractive to brand marketers who can reach a large audience more effectively than ever before. Indeed, as Mary Meeker mentioned in her Web 2.0 talk, CPMs on Facebook appear to be undervalued.

CPCs can also be argued to be undervalued on Facebook. While CPCs on Google and Facebook are very similar, today it is unlikely that the metric captures the true value of the data, targeting and virality of Facebook. In a basic example, we firmly believe that the value of a like on Facebook is far above the cost of acquiring a like today. Due to these factors, combined with the relative immaturity of Facebook ad markets, we believe Facebook CPCs are indeed undervalued.

We see Facebook as a medium that provides enormous value in a way we haven’t seen before. While their reach provides huge opportunities in a traditional direct response sense, the real value is in the social outcomes of a response that, in turn, produce revenue. We anticipate the marketplace adopting new metrics to understand, analyze and optimize to these “social amplification” variables as Facebook continues on its path of rapid growth.

Dr. Siddharth Shah
Sr. Director, Business Analytics

0 comments