Facebook's ad revenue depends largely on the combined pool of smaller advertisers. Here's what the company can do to better serve SMBs.
Facebook's History: From Dorm To IPO Darling
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Facebook made pre-IPO headlines for losing a single advertiser, General Motors, and the $10 million it spent with them last year. But the now-public company's bottom-line health relies heavily on the ad spending of much smaller companies, particularly those that run campaigns on the social network's self-service platform. The problem: Facebook isn't doing a particularly good job of serving its small and midsize business (SMB) advertisers.
"Facebook is failing SMBs right now in terms of its paid offerings," said Larry Kim, CTO at online marketing firm Wordstream, in an interview.
Facebook's massive potential audience does make it a logical place for online marketers to consider in their plans. Kim said the company is doing quite well by SMBs with its free services--chiefly, Facebook Pages. But he points to rising costs and lower click-through performance as reasons SMBs should approach paid Facebook advertising with caution--especially given that Facebook hasn't rolled out any major new options for advertisers.
Take your pick from any number of online stat sources here, but they typically support those trends. A gender-based comparison of click-through rates by research firm eMarketer, for example, notes that cost-per-click rates for male Facebook users--who are stingier with their clicks, apparently--have risen from $0.31 in early 2011 to $0.49 today. While advertising costs can run high on Google's ad platforms, too, Kim says the latter's variety of targeting, keyword, and format options--some of which Facebook simply doesn't offer--enable savvy advertisers to control costs while generating high-value leads.
"The rising click prices are a problem for SMBs because they can't compete with big brands," Kim said. "Yes, prices can be high [with Google], but you can always maneuver your way around high prices by being more picky." He offered narrower keywords or geo-targeting as two examples of how advertisers can do that with Google; you might still pay high prices, but you'll do so for more relevant results.
"I can justify paying more for more, as long as I have the confidence that the quality is going to be better," Kim said. "Where I have a problem is paying more for less, where the click prices keep going up and there's no kind of catch-up in terms of the targeting options."
So how can Facebook improve its advertising options? Here are four ways they could do a better job for SMBs.
1. Support Retargeting/Remarketing
Kim's big on the concept of retargeting or remarketing; the Google Display Network enables it, but Facebook does not. In short, these are the cookie-based ads that businesses and marketers run across Google's vast network of partner sites based on the user's previous online activity. That network includes everything from Gmail to YouTube to Blogger sites, not to mention just about anyone that runs Google display ads on their site. If you're not cookie-paranoid, you've probably noticed you seem to see ads for the same or similar companies on a recurring basis--that's retargeting at work.
Kim notes that while Facebook does a good job of helping SMBs engage with people who are already fans, it's less efficient when it comes to the undecided category--those warm leads that have some interest but haven't actually made a purchase decision. Remarketing can be particularly useful within that category. In an example remarketing scenario, if a lead visited your site but didn't make a purchase, you could then advertise to them when they later log in to Facebook. "There's no reason Facebook couldn't do the same thing [as Google]," Kim said.
2. Offer More Ad Formats
Here's my own personal take as a consumer: Facebook ads are mind-numbingly boring. Google's text-based ads aren't exactly my idea of entertainment, either, but search isn't supposed to be fun-- Facebook is. Kim points out that Facebook relies on two relatively tired ad formats and will need to evolve to better serve its SMB advertisers. Again, he notes that Facebook Pages--the stuff they give away free--is where the actual magic happens. Whereas Google can offer a variety of formats to suit an equal variety of goals--the increasing presence of ads on YouTube is a good example--Facebook's stuck with its basic ad (the ones that run along the right side of the page) and "sponsored stories" for the time being.
Ultimately, Kim thinks the real media asset is a company's actual page--and that that's where the real-but-untapped advertising opportunities exist, too. "They're giving away the thing that has value, and they're charging for the ads that no one clicks on--weird things like '10 ways to lose weight' that are just very broad and untargeted," Kim said. "They can still give Pages away for free, but charge for premium ways that small businesses can engage with their fans."
3. Figure Out Mobile Advertising
If you've used the Facebook app for iPhone or Android, for example, you'll notice a key difference with the Web interface: no ads. That might be a welcome change for some users, but it's an unrealized opportunity for Facebook--and for its SMB advertisers, particularly retailers and other small businesses with physical locations. Yet Kim thinks it would be a mistake to simply start showing traditional display ads on mobile devices; rather, SMBs would be best served by options specifically tailored to phones and tablets. "It's not just about showing banner ads on a phone," he said. "For example, rather than having a banner ad that goes to a Web page, it should be click-to-call, because you're on a [phone]--you click the link and it just rings the florist or the locksmith or whatever."
4. Provide Better Data
In a data-driven economy, Facebook advertisers might be left a bit dissatisfied--both before they run a campaign and after. "Facebook has a tremendous amount of data but only exposes a small pinhole of it to their advertisers," Kim said. Better insights into the folks that like your blog posts, for example, might better enable you to acquire them as customers via an ad campaign--but that information is largely limited today. Facebook can and should do better with analytics on the back-end of ad campaigns, too. Kim thinks it doesn't offer advertisers robust-enough insights into performance and optimization. That's a problem for ROI-thirsty SMBs.
"Their budgets are tight. They want to make sure every dollar is well-spent," Kim said. "There's not a heck of a lot in terms of campaign reporting with Facebook." Contrast that with what Google offers on its various platforms, as well as with Google Analytics, and Facebook comes up short. "They just don't have anything like that."
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