The End of Free Advertising on Facebook?

Posted: February 8, 2012 by mtfliang in Uncategorized

By Michael Liang, MBA Class of 2012

After Facebook filed for its IPO last week, online media advertisers and marketing pundits shifted their focus on Facebook metrics such as enormous user growth and user size, to advertising sales – a more useful metric for measuring value. It wasn’t until last year that Facebook began to charge customers for advertising and turn their ads into a revenue generator. For several years, advertisers were able to set up fan pages for free, where consumers could “like” or “subscribe” to companies or products they wanted to support or follow.

A Gordmans Store

An example given in the article follows Gordmans Inc., a Nebraska-based retailer that started a free page to engage with their customers online. As Facebook added more features and components to its site in 2011, Gordmans’ page content started to fade out of most “newsfeeds,” as Facebook users shared more content with each other. Gordmans’ media manager, Veronica Stecker, said she was rarely seeing posts from Gordmans in her own newsfeed. Stecker decided that she would move Gordmans from providing an “information-only” platform to building more interactive communication tools. She decided to start buying Sponsored Stories – introduced by Facebook last year – a move which generated a substantial increase in click rates. An unpaid story typically generated between 16,000 to 18,000 clicks, whereas Gordmans’ latest sponsored story generated 118,000 clicks.

Example of a Sponsored Ad, which they must have paid a premium for because I reloaded Facebook 10 times and that ad was at the top every single time.

Currently, Facebook offers different levels of advertising, ranging from less expensive banner ads to more expensive Sponsored Stories with premium placement, Most of the $3.71 billion in revenues that Facebook generated last year was attributable to advertising revenue.

Questions for class discussion:

–       Do you think Facebook’s change to its advertising offerings will cause an advertising bidding war between companies vying for premium ad space, where the big players will once again drown out the smaller ones? Why?

–       If you were in charge of marketing for your company, would you advertise on Facebook? Would you pay extra for banner ads or Sponsored Stories?

  1. Yulia Simkin says:

    I definitely think that a change in the ad offerings will lead to an eventual bidding war for ad space. Facebook is premium real estate for advertisers and provides some of the most in-demand advertising options available. Unlike most other ad options, Facebook has a unique advantage because it can offer 100% reach for an ad. If you’re an advertiser targeting females age 18-24 that are currently in college, you can specify these criteria and 100% of the advertising will be aimed at these individuals, which results in less waste. Overall, I think as an advertising platform, FB will definitely be getting a great deal of attention no matter how much they end up charging.

    In like news, see:

  2. Kristine Nguyen says:

    The reason why I wouldn’t pay for advertising on Facebook is mainly because everything gets ignored or can be “hidden” from your news feed. I would use Facebook to connect with customers and manage relationships, but not advertise directly to them in terms of Sponsored Stories or banner ads. I guess it just depends on what your company is trying to accomplish.

  3. Paul Quiring says:

    I would definitely pay for ads on Facebook. Just as AdWords is the most efficient way to advertise via search (Google), Facebook would seem to provide similar results, but to an even more targeted audience as Yulia suggested. I’m hesitant to say 100% reach, because I don’t think there is such thing, but Facebook could presumably get closer than other avenues.
    I do wonder however, if the smaller companies, or companies who have a FB presence but do so because its free and “everyone’s doing it”, will bail if it becomes a paid service. When it’s free, it is very easy and almost a requirement for any and every business to jump on board and create a page (especially considering the entire process takes about 5 minutes). Once payment is required, it wouldn’t be surprising to see 99% of business pages disappear. Any page that wasn’t made for serious marketing and to have a real concrete goal, will probably not pay for this service.

  4. Chris Balfour says:

    I worked for a firm that specialized in FB paid advertising, and i.m.o., its not worth the money. The best outcome for the paid advertising is “likes” for your business page. the ads that redirect to a website, instead of the FB page, hardly ever get clicked. A client is better off attracting potential FB fans to their FB page and deliver marketing messages on that business page once the page is “liked”. Rich media content like a FBML page makes the FB business page much more attractive to a first time visitor and more likely that the first time visitor will “like” the page and return in the future.

  5. Mao Shiun Ren says:

    If I were in charge of the marketing for a company, and is deciding whether to pay for Facebook advertising, there might be a concern. That is there may be a relatively low click through rate associated with this way of advertising. Facebook was initially a website for social purpose, but not for commercial. Most people want to come to the site because they’d like to connect with their friends but not to shop. Many people usually ignore the banner advertisements, pushed them away, or click on them rarely. I personally have seen lots of sidebar advertisements on Facebook targeted towards me, but I’ve never got interested in clicking on them. At the same time, I think it does depend on the company’s budget for advertising. Search engine ads campaigns may have become too costly for smaller companies, and Facebook advertisements could be a decent alternative tool for them.

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