Facebook Inc. has built a $3 billion-a-year advertising business by convincing marketers to buy new forms of advertising designed to create buzz around their brands.
But some advertisers with big spending accounts are wondering whether they're getting their money's worth.
The doubt lingers as bankers and prospective investors decide how to value Facebook for an initial public offering planned for May 18, said people familiar with the matter. Facebook executives will be pitching the company to big investors in an IPO roadshow starting Monday, these people said.
The question with Facebook and many of the social media sites is, 'What are we getting for our dollars?'
The Kia Motors Corp. has advertised on Facebook since 2009 and plans to increase its ad spending on the site. While building brand awareness on a site with 900 million users is valuable, Kia's VP of Marketing has said he's unclear if a consumer sees my ad, and does that ultimately lead to a new vehicle sale?
The concerns from Kia and other advertisers underscore the difficulties of measuring results of nascent-forms of social-media advertising.
Google Inc. and Yahoo Inc. sell traditional display and search ads on their sites. Facebook also offers image and text-based ads, but it pushes new methods that haven't been fully tested. Another good marketing campaign is to optimize your company website, using a professional SEO Company.
For example, last year Facebook launched a "Sponsored Stories" feature that lets advertisers rebroadcast people's positive posts on the site's main news feed to highlight them. Advertisers pay a rate based on impressions, or views those posts get.
While advertisers can directly track the return from ads on Google and Yahoo, Facebook mostly doesn't permit third-party surveys on its site or allow ads to be tagged with "cookies," software that tracks what people do online after seeing an ad.
Last week, Facebook showed its advertising growth doesn't always go up. The company reported its first-quarter ad revenue rose 37% to $872 million from a year ago, but it was down 7.5% from the previous three months. Facebook blamed "seasonal trends" for the decline, as well as shifting user growth where the company generates less revenue per user.
The questions about Facebook's ad business also creates a dilemma for bankers and investors who must decide whether Facebook deserves a lofty valuation. People familiar with the matter have said Facebook will seek a $100 billion valuation.
At that figure, Facebook's valuation would also be about 33 times its advertising revenue, compared with 5.5 times for Google. The reason for the discrepancy is in large part due to the fact that Facebook is still a young company with faster growth than Google, which is worth $200 billion but had $36.5 billion in ad revenue last year.
Advertisers, are trying gauge their own performance on Facebook. In March, the chief executive officer of WPP, the world's largest ad company, told attendees at a conference that clients, for the very first time, are starting to question the measurement issue on social media.
WPP, which works on behalf of companies such as Unilever and Procter & Gamble Co., said it expects to double its ad spending on Facebook this year to about $400 million. WPP said it will spend "north" of $2 billion with Google this year, up from about $1.6 billion last year.
It doesn't help that Facebook has alienated some advertisers with what they perceive as a highhanded attitude that implies that marketers have nowhere else to turn. Some media buyers and advertisers said Facebook has stymied their attempts to get more ad measurement, for instance. There's a pretty high degree of animosity right now with Facebook because they have become so powerful. The tension is partly the result of how quickly Facebook has had to scale its business.
For its part, Facebook has made repeated attempts to quell marketers' concerns about the effectiveness of its ads. Last year, the company began working with research firms comScore Inc. and Nielsen Co. to offer tools that let big brands track their social media campaigns on the site.
Nielsen, for example, measures consumers who saw an ad on Facebook and compares them with a similar control group of Facebook users who didn't see the ad. It then matches that up against shopper data to see how ad exposure affected sales of the product.
Still, the research firm says not all types of ads are easy to measure all the way to purchase. They add it's particularly tough to get that level of detail from car ads, luxury goods and high-end clothing because such purchases aren't made regularly and often different emotional things play into those purchase decisions.
Some big advertisers have conducted research that shows social networking campaigns have boosted their sales. Ford Motor Co. said by using Facebook ads instead of Super Bowl ads in marketing its 2011 Explorer, shopping activity for the Explorer jumped 104% versus the average shopping lift of 14% following a Super Bowl ad.
A Ford spokesman said that more than 20% of the company's digital media spend is on Facebook. The number one trusted source of information for consumers is recommendations from friends and family. Facebook provides a reliable platform to leverage that insight at scale. Still, he said it's difficult to measure Facebook's value against other forms of advertising.
On Tuesday, research firm eMarketer released a study showing 84% of executives it recently polled said that social media campaigns had boosted the effectiveness of sales and marketing efforts. Yet eMarketer also said that while measuring followers and Facebook 'likes' provides marketers with a hard number, no one yet knows how those numbers translate into a quantifiable return for brands.
Some ad executives caution that a calculation of monetary returns is an incorrect way of viewing Facebook ads.
If a marketer measures return on investment as direct sales from the Web, then Facebook may not be the ideal platform. But if the goal is to move the needle on brand health metrics, whether its awareness or engagement, then Facebook should be a key part of the marketing mix for most consumer brands.
Some brands have figured out ways around Facebook's measurement limitations. They have hired ad companies like Buddy Media Inc., which can give advertisers a deeper understanding of how Facebook's promotions work, or install apps that offer advertisers the ability to track users by allowing people to opt in to cookies.
Kia, meanwhile, said it is working with Facebook to get better measurement of the effectiveness of its ads. Kia declined to provide ad spending figures.
For more organic SEO and web optimization related news, visit the SEO Done Right blog.
For national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
