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New Facebook ad offerings fill some holes March 5, 2012

Posted by David Card in Uncategorized.
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When Facebook filed for its IPO last month, I wrote that if it hoped to maintain its revenue growth it needed to adjust its advertising strategy to suit big ad buyers. I predicted it needed to change the way it sold ad inventory and add some glitzier formats. Last week, at its fMC event for marketers, it made some progress toward addressing those needs. Competitors and other players in the online advertising ecosystem should note what Facebook is doing right and where it still has holes.

GigaOM readers got an early preview of some of the new Facebook ad formats, but those aren’t going to be enough for Facebook to recognize a quick payoff. Those ads still depend on Facebook’s proving to traditional advertisers the value of social media marketing that hinges on user engagement and viral pass-along via a format it calls Sponsored Stories. Facebook needed to include the following:

Guaranteed reach. Previously, Facebook enabled advertisers to buy a guaranteed number of impressions, but its previewed Reach Generator service means Facebook will guarantee a marketer’s posts will be shown to 75 percent of the brand’s fans within a given month. There is no word on pricing, and this approach is hardly the daypart timing advertisers are used to on TV or online portals. Facebook should add some finer-grained controls or prepackaged slots to support timed releases. And it should build in frequency capping so these ads don’t risk overexposure.

Premium placement. Facebook display ads show up in a tiny, right-rail ghetto. And Sponsored Stories, while they are working their way into Facebook’s news feed, are strictly controlled by Facebook’s ranking algorithm rather than by advertiser needs. Facebook still won’t let advertisers do page takeovers or interstitials, but it introduced a new format that will show at log out. This will be a popular slot for brand advertisers, either for targeted audiences or full-day exclusive takeovers to reach everyone.

Flashier formats. That log-out ad supports video and rich media. Finally, Facebook can pitch an ad unit that is at least somewhat comparable to what portals like AOL and Yahoo and big online publishers like Forbes, the New York Times and ESPN have been selling for years. Facebook demoed an ad for the 3-D release of Titanic that was slick, but it can’t touch the effect of a day-before-opening-weekend Yahoo home page placement. If that spot commands a quarter of a million dollar price tag from Yahoo, think what Facebook could charge for an exclusive home page or photo interstitial.

Steady progress, far to go

At fMC, Facebook also announced that Sponsored Stories would work their way into the news feeds on mobile phones. While that is a step toward mobile monetization — a lack Facebook called out in its prospectus — it’s a small step. Like Twitter’s just-announced in-stream mobile ads, Facebook isn’t targeting by location, and it’s not even clear you can buy mobile separate from the desktop feed.

Facebook also reintroduced Offers, a coupon-sharing scheme; it had shuttered a prior experiment. And company pages will now use the Timeline format. That is getting mixed reactions from marketers, but I suppose as long as Facebook doesn’t explicitly charge for pages it can be pretty arbitrary in how it makes changes to them. Meanwhile, Facebook made some minor but much-needed improvements to its page management and analytics tools.

In my earlier post, I was skeptical that Facebook would make the changes in how and what it sells to advertisers quickly enough, and it would miss out on near-term revenue growth and market share gains. These new initiatives indicate that Facebook, while still focused on reinventing marketing with social techniques where it has competitive advantage, also has its eye on the here and now. It’s not completely ignoring conservative ad buyers.

Facebook won’t grow its ad revenue 69 percent in 2012 the way it did last year, but it could double the 24 percent rate projected for the U.S. online display ad market. That means it will gain share at the expense of companies like Yahoo, AOL and MSN. How about Google? Well, that would take an ad network that leverages Facebook’s social graph on third-party sites. Facebook hasn’t changed its story that is has no immediate plans for such a thing. We’ll see.

Question of the week

How fast will Facebook ad revenues grow this year?
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Digital won’t “evaporate” ad dollars February 27, 2012

Posted by David Card in Uncategorized.
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A new survey of advertisers and agencies generated some scary headlines last week. Talk centered around the idea that as ad dollars shift to digital media and marketing, the overall pie will shrink. Will digital marketing really decimate overall ad spending the way craigslist and Google crushed classifieds and the Yellow Pages?

Calm down. Let’s review the case. While newspapers have it tough, other big ad markets like broadcast and cable TV and direct mail are still pretty healthy, and technologies like targeting and social media advertising could still increase the value — and thus spending — of both digital and traditional media.

Why there is concern

Besides the examples above, there are some valid arguments for the “digital evaporation” case:

  • Pricing. The old “analog dollars become digital dimes” meme is true right now, and it is particularly damaging to newspapers. Infinite inventory online kills pricing. The report that the Society of Digital Agencies (SoDA) based the survey on claims that “a dollar or euro lost from TV and print budgets becomes 20 cents of digital,” though it is not clear how it came to that exact figure.
  • The end of Wanamaker’s 50 percent. The famous quote runs, “Half of the money I spend on advertising is wasted; the trouble is, I don’t know which half.” Even with never-ending arguments over digital measurement, there is no question that pay-per-click pricing is tremendously efficient for direct marketing, and auction-based pricing for search and display ads eliminates much of traditional media’s wasted spending.
  • Ad networks. Ad networks from Google, AOL, ValueClick and others make it easy for advertisers to reach a big audience cheaply (each can reach over 80 percent of the U.S. online population, according to comScore) compared with print and television. While they enable web media companies to sell otherwise unsold remnant inventory, they contribute to overall pricing pressure. Ad networks bring a pricing transparency that could do to ad spending what Expedia and Google did to the travel industry.

Reasons to be cheerful

But don’t panic just yet. First of all, there is only anecdotal evidence of budget shift. Overall ad spending has continued to grow throughout the rise of online. In the SoDA survey, more advertisers said that in 2012 traditional media spending would shrink (33 percent) than grow (22 percent), but the survey didn’t weight those responses for their actual dollar spending. And respondents also said they would increase (50 percent) rather than decrease digital spending (16 percent), again without weighting. Overall spending might go up; you can’t tell from that. And in fact reputable ad forecasters expect overall ad spending growth this year, with sluggishness attributed to the economy rather than digital shifts.

Call me an optimist, but I still believe in some as-yet-undelivered technology promise. Those digital ad efficiencies and networks covered above also accommodate better ad targeting. Couple that efficiency with auctions and target via behavioral and psychographic audience characteristics, and prices will actually go up. Advertisers and agencies I have worked with — including Cisco, Procter & Gamble and Intercontinental Hotels Group — will be happy to pay a little more for provable, better results in terms of brand lift, increased trial and better direct marketing conversion. A premium of 10–20 percent isn’t beyond the realm of possibility.

Yes, cable TV pricing is lower than broadcast, even though it is somewhat better targeted. But cable TV “targeting” today is contextual — based on content — and based on very simple demographics. That is nothing compared to what digital can deliver, and those digital technologies will gradually migrate to television. What is holding back spending is inertia, conservative agency buyers and a lack of experience in that kind of planning. But Google, digital buyers and direct marketers are gaining exposure at agencies and marketers. It is just a matter of time.

Social technologies also hold great promise. Underline “promise.” Facebook is the biggest social game in town, but it is surprisingly conservative in its advertising experimentation, relying mostly on cheap inventory for direct marketing. Beacon backfired, and now Facebook seems twice shy and overly concerned with user reaction. However, it might have to accelerate advertising with a looming IPO and rumors of first-quarter shortfalls.

Ultimately, integrating social elements with traditional media advertising will lead to increased spending. Advertisers will also pay more to amplify marketing messages via fans and influencers. Brand advertisers I have worked with like IBM and P&G are definitely intrigued with the two-way engagement social media can deliver, even as marketers use social technologies to save money on things like market research and customer service. Not all incremental social spending will go to media companies. They need to build out their own services, improve their analytics and develop agency partnerships to get their fair share. But not all the cost savings will come out of their hides, either.

Question of the week

Would you pay more for better advertising?