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