Facebook’s challenges ahead as it goes public

May 16, 2012
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(This article was originally published at Numbers Rule Your World, and syndicated at StatsBlogs.)

Given that Facebook is on the verge of going public -- the IPO supposedly over-subscribed, leading to an increase in the projected price of the offering, this article from Reuters is big news: GM, the third largest advertiser, will not spend anymore money on Facebook ads.

This should rightfully get Facebook's attention. We have previously discussed the incredibly low clickthrough rates of Facebook ads, and speculated as to why consumers don't respond to these ads. (link)

As marketers start to ask questions, Facebook is going to have to give some answers. Here is a starter's list:

  • Why can't advertisers know which users viewed messages? Without views, advertisers are forced to look at "reach", which measures how many people are shown the message. Showing is a far cry from viewing.
  • What is the decay factor that should be applied as one traverses down the social graph? The value of a friend of a friend of a friend should not be the same as the value of a friend.
  • What is the point of collecting "Likes"? Do "Like" campaigns generate any new customers or increase brand awareness or does it just allow loyal customers to express their love of a brand they already know about?
  • What is the incremental value of online advertising? The focus on the clickstream is a red herring (not just for Facebook). The clickstream is a description of the path taken by a customer to reach the buy event. For most companies, especially for large brands like GM, there are dozens of paths a customer could take to reach the buy event. The online channel must prove itself by showing that if the clickstream path is blocked, the sale is lost -- in many/most cases, the customer would just shift to a different path (e.g. click on an email, go to the store, call the 800 number). Said differently, the clickstream is not causal evidence.

Online marketing probably works but with the data and reporting currently available, we don't know if this is the case. I gave a talk recently making this point, that online marketers need to do a better job showing return on investment. The medium promises to be more measurable and more accountable but thus far, that is a promise and nothing more. GM's action pretty much speaks to this point.

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Credit Facebook for extracting the highest price for its IPO - could it be downhill from here?



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