Does Facebook’s current business model = EPIC FAIL?
There’s a lot of talk and media coverage about online advertising being used increasingly as a direct marketing tool and not for branding. As a publisher who has never accepted performance advertising on our sites it’s a topic close to my heart.
I recently had dinner with the CEO of a large music company. He said some things that made me see the branding versus direct marketing argument completely differently. His company uses and loves Facebook as a way of raising awareness of album releases and tours. What they love most about it is that they only pay when someone clicks on the ad. But here’s the bit that almost made me fall off my chair. They specifically design their ads so that users DON’T click on them! They totally use Facebook as a branding and awareness driver yet they pay based on performance. He mentioned a recent campaign where they paid $26AU for over 1M page impressions as their most successful FB campaign yet. That’s a CPM of less than 2.6c. No wonder they love it!
For them ‘performance’ is determined based not on the highest number of clicks but the lowest! I’m no economist but there’s something fundamentally, alarmingly wrong with this model (unless you’re the advertiser).
He assured me that this was common practice amongst other music companies he speaks to. It got me thinking, if the music industry is doing it, then what’s to say all the other performance junkies like the finance industry are not doing the same? I can just imagine a bunch of big bank marketing staff all laughing wickedly behind closed doors at the stupidity of the media companies that let them win whether someone clicks or not.
For a long time my basic argument against performance has been that as a publisher we are at the mercy of the advertiser’s creative. If the ad sucks, we get penalised.
An ad that sucks
This Facebook example makes my stomach turn. FB has almost infinite page impressions at their disposal but for a niche content player like us, we need to make every page of our finite inventory count. How can we or anyone compete with a 2.6c CPM? The answer is you simply cannot. And how can Facebook seriously expect to ever make money when their advertising model encourages this kind of practice? And it’s not just clever media agencies doing it but small to medium businesses who can simply login and enter their credit card details.
It may be rare for performance campaigns on Facebook to go as low as 2.6c CPM but humour me for a moment. Applying this CPM they would need to deliver 38,461,538,462 (38B pages!) to generate $1M in ad revenue. I can’t find any numbers on FB’s total pages per month but they claim to have 250M users so assuming an average of 200 pages per user they are generating 50B pages a month. Two ads per page = 100B ad impressions. At 100% sell through their revenue from these ads equals a paltry $2.6M a month for the fourth biggest website on the internet.
According to reports it will make $500M US this year so clearly there’s other revenue streams and perhaps higher CPM’s right now. But you have to wonder, while this kind of illogical set up prevails and advertisers becoming increasingly savvy at rorting the performance model there’s little hope of their CPM’s (and the industry’s in general) going anywhere but down. Facebook are giving away a quality product almost for free and it’s not just them. The industry is rife with branding masquerading as performance.
Surely this is a just a race to the bottom.
2 Responses to “Does Facebook’s current business model = EPIC FAIL?”
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A race to the bottom, yes. But doesn’t all PPC advertising work this way? (ie. if it’s an awareness campaign, design for fewer clicks?)
It certainly doesn’t bode well for facebook to be gamed in such a way. But the same thing could be done on any website. The question is the actual effectiveness of the ads.
Are the right people seeing them?
Are they paying enough attention to know what the ad is about?
Sure facebook has targeting, but even that can only target so far. It may not be the greatest trend for smaller websites to have facebook devalue advertising in such a way. But this may just be a turning point towards more content-integrated/immersive advertising, as opposed to the one-to-many billboard facebook uses.