The Wall Street Journal says, "…some advertisers with big spending accounts are wondering whether they're getting their money's worth."
The Atlantic reports that "…advertisers have started to figure out that Facebook's ad strategy isn't all that strategic. The social network has used its huge 800 million-strong audience to lure advertisers, but these companies want more than the feeling that 'engagement,' 'sponsored posts' and 'likes' work. They want metrics and results -- something Facebook can't and doesn't measure."
In any other previous advertising era, this would have spelled doom for a publisher. It's why advertisers, investors, analysts and the media are sounding alarms now. But there's something inherently wrong with these arguments: FACEBOOK IS NOT A PUBLISHER. FACEBOOK IS A PLATFORM. And it's the way people spend the most time with digital media.
This represents such an important shift in the digital advertising economy, that even Google (who redefined the ad economy with AdWords) is attempting to become (or at least build) platforms in Google+, YouTube, and Google Docs (yes, that 's three different platforms, and another opinion piece). And the differences between the publishing and platform environments are striking.
The publishing marketplace is dependent upon the scarcity of impressions -- the ad inventory, and the basic unit of advertising. On Facebook, impressions are endless, created by nearly every engagement, and "engagement" on Facebook can mean just about any kind of interaction or exchange of data.
The publishing marketplace facilitates "branding" with instant reach and impact. Facebook facilitates branding with frequent "engagement" (or "stories" told) over extended periods of time.
The publishing marketplace is dependent upon last-click attribution. Facebook enables frequent interactions with consumers over time.
Unlike traditional publishers who want to make their advertising feel premium, Facebook actually marginalizes what it calls its ad inventory by selling increasingly more of it through partners via the Facebook Marketplace API. Most of their "premium" ad inventory winds up eventually getting pushed into the marketplace, replaced by newer versions of premium ads.
With Facebook, real consumer connections become the new impressions, as they are what have become scarce. Ad space just makes those connections happen more often. It's advertisers who shoulder the burden of making those connections yield value that contributes to their business objectives. It's a canvas. Is that value driven by media spending? By creative executions? By customer service? By ads? By apps? The answer is all of them -- which doesn't suit the traditionally siloed advertising business very well.
As a platform, Facebook seeks to offer something that publishers don't -- a utility to make marketing programs more efficient, more successful, and more relevant, by busting silos. The Facebook advertising sales pitch distilled is , "build your marketing programs to work through Facebook and use ads on Facebook to drive engagement with them at scale." With more than 900 million people using Facebook to share and consume information and media, that 's quite an audience to tap into. Marketers can't afford to leave it alone, but fault Facebook for not delivering the ROI goods. But before Facebook, the only thing connecting consumers to brands were a credit card or their email/physical addresses.
Facebook's primary function as a platform has been to provide the best experience for its users. As a public company, that function will need to share the spotlight with its ability to generate huge amounts of (what we assume will be ad) revenue. Historically, in a publisher-driven world, publications had a responsibility to remove friction between the people spending the money, and the sites taking the money. This led to the same "real estate"-driven formula of filling pages with easily "spreadsheetable" standardized ad units that most people eventually ignored (and still do). In this new platform-driven world, advertisers must be responsible for removing friction from consumers' comprehension and distribution of their brands' messages. Brands are being forced to develop marketing programs that better reflect the way consumers behave with their media, or risk irrelevance. Impressions go from something you buy, to something you earn. That upsets the apple cart, and the brands and buyers that have done things the same way for generations.
Solely blaming Facebook for their inability to deliver advertising ROI, or enough metrics, is like blaming the school you went to for your salary not being high enough. Advertisers are in full control of the experiences they create on and off the platform. Facebook is adapting to advertisers by selling ads and yes, providing rich, increasingly real-time (non-personally-identifiable) data because that 's what advertisers buy. But what Facebook really believes is that the future of marketing is in extracting the most value from relationships, and that they are the best possible platform for brands to make relationships happen.
The art and science of media buying is going through a period of disruption that Facebook is leading. As with anything else that gets disrupted, lots of time, energy, and money are spent on preventing inevitable change from happening.
So will Facebook eventually change the media landscape to look more like Facebook? Or will Facebook have to change?
The answer is likely somewhere in the middle, because there is a ton of potential advertising revenue that Facebook does not want to leave on the table. If you're evaluating the value (not valuation) of Facebook's IPO, you have to consider:
- Reach. Facebook is the new normal. It is where consumers' eyeballs are. It's just that they are all looking at something completely different. There are exponentially growing opportunities to synthesize data to reach as niche or as broad of an audience as advertisers' dollars can afford. Facebook will continue to innovate in this space.
- Identity and data. Facebook is a universal sign-on for most websites and apps. They collect tons of data. Data enables marketing and advertising to be more targeted. They own this space now.
- Competition. Even though Facebook's "advertising solutions" exist only on Facebook.com for now, their manifest destiny is extending that ad marketplace to the open web, just as Google did. An ad network powered by the data yielded by interests, affinities, activities, engagement, at the scale that Facebook offers will be a serious threat to Google, and could potentially double Facebook's ad revenue very quickly.
- Globalism. Most of Facebook's ad revenue is driven by the US and Europe. There are still other relatively untapped markets from which Facebook can extract significant revenue.
- Diversification. When we think of Facebook's revenue, almost all of it comes from advertising. If they enter any other sectors (such as payments), look out.
- Leverage. As brands get savvier about attribution and "figure Facebook out", they will realize that they need to drive that valuable engagement at scale. Facebook ad products will enable them to get more out of their investments. With the scale that Facebook currently has, and the important role that it serves in peoples' lives, an investment in marketing programs that Facebook runs through is an investment in relationships with customers.
Sensationalist stories about Facebook not working for advertisers imply that Facebook is to blame. Advertisers and agencies must not shirk the responsibility of identifying the ROI of their marketing efforts, and will need to evolve for a landscape where platforms are more important, and how consumers discover content. Facebook is only the most recent media disruptor. Twitter is one too. And so is every other platform that will attract hundreds of millions of consumers in the near future.
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