Wednesday, May 23, 2012

Does it matter whether or not Facebook makes money on advertising?


Now that Facebook has gone public, it matters whether or not Facebook can make money from advertisements. Did you notice that it didn’t matter before? We all happily signed up (because it was free) and we have been using this service (without paying a cent) to re-connect with old friends, make new connections, stay in touch with family members and share our lives.  What is Facebook worth to you today?

For the average user, Facebook is a social platform. How will Facebook successfully help advertisers get customers to click on an ad while they are on a site where their main goal is socializing? It doesn’t seem like a co-incidence that GM would publicly announce that they were pulling their advertising from Facebook the week that Facebook was to go public. At the last LinkedOC meeting, one of the panelists offered this viewpoint on the situation: Why would GM make this announcement publicly? Why would GM make an enemy of Facebook? If Ford is smart, they will make the most of this opportunity to create headlines by working strategically with Facebook over the next year.

Think about how you research products online. If you search for something on Google, do you purposely avoid the ads on the top and the side? Are you skipping down to what we call “organic” search results? Now, think about word of mouth. Are you more likely to buy something that a friend recommends? That is the basis of Facebook’s “like” feature. That is why Google created Google+, so they could start integrating the social recommendation feature.

If a company sets up a business page, and can get people to share the content that company posts, then those people are seen as advocating for the brand. Business wants to see direct ROI, however. Now that Facebook has gone public, the conversation is only focused on whether or not people will click on the ads because that is the most obvious way for Facebook to make money and for advertisers to prove ROI. I predict that there are still creative ways for companies to get ROI using a combination of advertising and “organic” content. As companies continue to use traditional marketing rules to make money online, they will find that companies using more creative (social) means will be more successful.

Facebook’s advantage over Google is the demographic data they have collected on you. Most people are nervous about that, but they use it so that advertisers can make their ads visible to the demographic they are targeting. However, Google tracks what you click and search for on the internet so they can target advertisements around things it thinks you want to buy. Either way, I am happy that the sites I use know what I am looking for and suggest good products or prices (sales) that I might be interested in.

The question is whether or not you will click on an advertisement on the internet if you had a different purpose for being on that page to begin with. Do you appreciate these sites making it easier to find products and services that you might be interested in? Or are you concerned that it is an invasion of your privacy?