Clearly, Facebook’s much awaited IPO didn’t exactly go to plan.

First, there was the news that GM, one of the world’s largest advertisers, was pulling their $10m Facebook ad spend. Whilst remaining committed to Facebook as a means of engaging with their fans via their various branded pages, GM had clearly decided that Facebook wasn’t generating the required returns and they could get more for their investment by allocating it elsewhere.

Then, post IPO, Facebook’s stock didn’t soar as many had expected. On day 1, the companies underwriters were forced to step in to stop the shares from falling below the $38 offer price. By day 2, shares had fallen 12% in early trading.

Clearly, we have to put things into perspective. Most of us would like a bit of ‘failure’ Facebook style, if failure means a stock market price that values the company at 100 times earnings and turns its founders into billionnaires.

However, GM’s very public pull out has led many, including investors, to question the long term growth potential of Facebook advertising. Can advertising revenues climb fast enough and far enough to justify such a loft evaluation?  In short, is Facebook advertising a sound investment for companies or should more, as GM have done, be pulling up their advertising tent and pitching it elsewhere?

Here are some points to consider when reviewing your own Facebook advertising spend:

If You’re Going to Judge Facebook Advertising on Traditional RoI or CPA Measures, You’re Probably Going to be Disappointed

And this is probably how GM have been judging it, hence the decision to pull out and re-allocate the spend to other digital budgets that are delivering demonstrable return.  But this can be a dangerous game – ‘not all that can be counted counts and not all that counts can be counted.’ An automotive purchase, like many luxury buys, is a considered and complex one and Facebook is often working right at the top of the purchase funnel. Just because it’s not generating click thrus doesn’t mean it’s not influential. It’s interesting to note that just as GM is pulling out of Facebook, Ford announced that it’s increasing its spend.

Facebook Advertising is a New Phenomenon and Advertisers and Consumers are Still Getting Used to It

Many advertisers may not be reaching their full potential on Facebook because they’re still getting to grips with advertising in a new medium. it’s certainly a very different environment to the standard publisher’s site and different techniques and rewards are required.  Likewise, Facebook users are still getting used to interacting with brands on Facebook. But engagement is growing – a recent study showed that the number of UK consumers engaging with brands via Facebook has almost doubled since August 2011. As more fans engage, and see the benefits of engaging, so more will be open to Facebook advertising.

We Don’t Know What’s Happening Post Impression

Those of you that have been reading our articles on online advertising will know that the research points to most online ad-prompted actions happening post impression. In fact, studies have suggested CTR can sometimes be a very misleading measure of an ad’s effectiveness in terms of influencing brand preference and the eventual sale. As a form of online advertising, it’s very likely that many of these factors apply to Facebook advertising too – its having an impact on brand metrics but not necessarily generating immediate action.

Word of Mouth is the Most Powerful Marketing Tool and Facebook Advertising Leverages Word of Mouth

Facebook is a powerful tool for creating engagement and advocacy amongst fans. And Facebook advertising is an excellent means of leveraging that word of mouth to win new fans who can be turned into customers using formats such as sponsored stories. And there’s no more effective way to win new customers than via word of mouth.

Facebook Advertising Can Generate Insight

Brands can often have a false perception of their target market. Facebook advertising can be hugely enlightening in understanding who customers and potential customers really are by looking at response and engagement rates for different audiences.

F-Commerce May Change the Landscape

Facebook users show reticence to take any action that takes them away from the social network – an extra barrier in the way of generating measurable action and hard results from Facebook advertising campaigns.  Should F-commerce become more widespread – and it’s a big ‘if’ considering brands’ preferences to drive consumers to their own, more controllable, ecommerce destinations – then we might see more of a direct correlation between Facebook advertising and sales.

So, as you’ll have gathered, we think it’s much too early to call time on Facebook advertising yet – it still offers many benefits to brands and has much untapped potential.

Whether Facebook can justify it’s lofty valuation in the future will depend it’s ability to successfully appeal to SME’s – the drivers behind the success of Google’s search and ad network. But for larger brands with advocates to leverage, we believe it’s usefulness has already been proven.

By: Neil Cunningham

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