Facebook’s IPO: The $100 Billion Question for Marketers
Now that Facebook has filed its IPO there is much speculation regarding its value and how being a public company will impact the social network for consumers and brands. While it is up to Wall Street to value the company’s true worth, we, as marketers, should look at some key Facebook trends to evaluate future Facebook monetization opportunities and what it means for brands.
A look at some of the key trends:
Facebook is finally on every major brands marketing plan: While Facebook rapidly expanded its user base from the very beginning, it was relatively slow in gaining traction with advertisers. In 2011, that has changed. It was, from our perspective, a watershed year for Facebook – a time when the site went from being an experimental medium to a medium that appeared on every major marketer’s media plan.
Facebook ad spend continues to accelerate as marketers begin to understand social ROI: Our recent research shows that Facebook ad spend is nearly 3% of biddable online ad spend. However, we expect this number to increase to 5% of all online ad spend within a year, specifically in verticals such as retail where Facebook currently has a relatively small footprint.
The main reason for Facebook’s slow adoption in the retail category has been its perceived inability to show a direct response to marketers’ call for ROI. However, this will soon change. Why?
1 — Based on our client data, between 40–60% of all transactions that start on a Facebook ad end in a different channel. So, in a last-click world (which about 70% of retailers currently use), the ROI on Facebook campaigns looks poorer than it really is.
2 — We have seen glimpses of evidence that show that when brands interact with their fans, the offline store traffic increases. In other words, online interaction on Facebook seems to lead to more monetization offline.
3 — We have seen that consumers interacting with Facebook apps tend to buy products more frequently and of a higher value.
4 –Facebook has a massive data asset that only continues to grow. This is perhaps the most important component driving this change.
The bottom line is that the effect of Facebook on purchase behavior and revenue is often indirect and long-term. Today’s direct response metrics don’t capture these effects correctly and thus do not show proper revenue impact. The ability to measure the value of Facebook on direct response will change as more marketers implement marketing solutions that offer cross-channel measurement, analytics and optimization.
New ad formats that leverage the social element of Facebook will accelerate social ad spend: There are two features of social marketing that give it a significant advantage over any other channel:
1 — The social element. When a friend endorses a brand, product or a service there is a much higher propensity for others to buy or endorse it, as well. However, we believe that the social element is still underleveraged for marketers on Facebook. Apart from Sponsored Stories (which do remarkably well on Facebook), and reaching friends of fans, we have not seen new innovation in this area. We believe there is huge potential in making ads and apps even more inherently social so as to gain more free “earned media”.
2 — Facebook’s massive data asset is relatively untapped. The company has one of the richest sources of consumer data on the planet, but for understandable privacy reasons, it has not enabled marketers to leverage it. Yet, we believe that in due course innovation will emerge that balances privacy expectations and regulations with ways to provide marketers with rich data beneficial to industry and consumers. The innovation will come in the form of new ad formats, segmenting capabilities and advanced reporting.
Facebook will be the catalyst for a major media mix shift: Many analysts ask if Facebook budgets are eating into search and display budgets. So far, it is not, and we believe that will continue to be the case. Facebook’s budgets have and will continue to come from TV and print. There are two reasons for this:
1 — Consumer’s behavior when they see ads on Facebook is a lot like when they see ads on TV. They initially respond well and strongly but when they see the same ads again the response rates drop significantly. The same applies to apps. Thus, the best-executed marketing strategies on both TV and Facebook have the following common elements – a short but intense campaign to maximize reach, frequency and word of mouth; a pulsed media buying strategy so consumers are not saturated with the same ads; and very strong, creative ads that encourage people to look, engage and interact with the brand.
2 — The other reason is the way in which people engage with different media. Many TV viewers are on Facebook simultaneously. We have seen this with some of the fan pages of TV shows that we manage – peak hours of engagement coincide with the times that the show is broadcast. So, if a brand wants to reach out to an audience of a particular show they should advertise on Facebook, too. This is unlike search where the core purpose is to find a product in the most efficient way possible and then get off the search engine’s ecosystem.
What does this means for marketers? Facebook’s IPO will increase pressure on the company to monetize its traffic much more efficiently. One should expect to see new ad formats and targeting capabilities being released. Additionally, one can also expect to see increased ad buying on the channels as more marketers look at social ROI through a broader and, in our opinion, more correct lens. Finally, expect to see more coordinated TV and Facebook campaigns as well as a shift of media dollars away from TV and print to Facebook.
Dr. Siddharth Shah
Director, Business Analytics