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Joseph Perla Was Wrong About Facebook Advertising

June 13th, 2012

facebook advertisingBy Samuel J. Scott

Since Facebook went public a few weeks ago at $38 per share, its price had fallen to $27.41 as of mid-day yesterday. While this is understandably of great interest to finance writers and those who are investors, my interest has focused more on those pundits who have stated that the decline shows Wall Street’s lack of faith in its long-term business model. I have not written on my site here in several months since I have been busy with my digital-marketing work for The Cline Group, but I wanted to offer some thoughts since I have worked in social media and inbound marketing on a daily basis for years.

GM canceled its $10 million Facebook advertising campaign just before the website’s IPO. Later, Ryan Holiday reposted an essay by Joseph Perla arguing bluntly that Facebook is a Ponzi scheme:

Have you ever bought a Facebook ad? I have. I have talked to many, many people who have. We have spent hundreds, many have spent thousands or even more, experimenting with Facebook ads. They are worthless. Nobody ever looks at them, and nobody ever clicks on them. I just talked to someone who was trying to promote a book. He found it cost him over $100 in ads to sell one book. Moreover, as you increase your ad spending, people get used to the ads and just ignore them. So, your already low click-through rate plummets even further.

People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google. People go to Google to find something they need, possibly ready to buy, which a good percentage of the time can in fact be solved by someone’s ad. Facebook ads, on the other hand, annoy users. They yield no real value, and thus no profits. (emphasis original)

As you can probably guess by the headline of this essay, I think that Perla and Holiday — with all due respect to their experience and knowledge — are wrong. Below, I will provide my argument based on my personal experiences, but here are the bullet points:

  • Almost any advertising medium can yield profits — as long as you use it correctly
  • It is not correct to use Facebook advertising for direct sales — that is using outbound marketing in an inbound-marketing context
  • You want to use advertising and content marketing to build a good Facebook page — and then market on the page itself
  • If you get quality clicks to your landing page but few conversions, the problem is most likely your landing page and not the advertising platform in question

As Ben Kunz notes in BusinessWeek:

Making social-media communications work requires heavier lift than many organizations can muster… Each click on a Facebook ad puts a consumer on your product web site. If you then can get only 1 percent of those consumers who click on ads to “convert” and buy your product, you’ve achieved a $200 cost per sale…

Keeping Facebook conversion rates up and customer acquisition costs down requires a constant battery of audience-targeting refinement, creative testing, and website “landing page” adjustments…

The challenge with Facebook, though, is that conversion rates can be very low in some product categories. Social media users are being social, after all. Unlike the pay-per-click ads that Google serves up only after consumers type in the names of products they are hunting, Facebook ads pop up while you’re bragging about your five-mile run.

Kunz brings up many important points, and I’ll address those in context. In terms of clicks to an external website or landing page, Google CPC, in my experience, performs better than Facebook ads because Google AdWords is inbound marketing while Facebook is outbound and interruptive advertising. The beauty of inbound marketing is that the practice reaches people who are already looking for your product or service and hence are predisposed to buying and less likely to be annoyed by the marketing messages. (I search Google for “widgets” and then see advertisements and search results about “widgets.”)

From television commercials to newspaper advertisements, outbound marketing interrupts people in their daily lives — and, as a result, it is usually less successful. (People hate when commercials interrupt their favorite television shows.) No matter how well Facebook ads are matched to users based on their stated interests, Facebook advertising — particularly in regards to external links to products and services — is outbound because the ads interrupt people while they are posting photos and chatting with friends and family. So, the feelings of people like Perla and Holiday are understandable since they may have been using Facebook advertising in a wrong (and costly!) way.

In addition to my work for The Cline Group, I publish three personal websites: this online-marketing one, a current-events blog since I was a journalist in my former career, and an affiliate-sales website about “Buffy the Vampire Slayer” since I have been a fan of the show since it had premiered when I was in college. I have used Facebook advertising successfully on the third site, and I will explain how here.

But first, a concrete example of what does not work (as explained earlier): direct sales. One of the “Buffy” products I sell as an affiliate is an expensive statue of a character named Spike. I set a Facebook ad targeting people who “like” both the character and the actor specifically and going directly to the store’s website (and not my own site).

Noting the price of the product ($233.99), my commission rate (14%), and the CPC ($0.26), I had calculated that I had needed at least one sale from every 126 clicks to break even — and anything more would be a profit. And what did I see?

facebook advertising

I had received 80 clicks and spent $20 — with no sales. So, I stopped the campaign. As I have seen — and as Perla and Holiday correctly point out — direct advertising to products does not work on Facebook ads. So, I did something else.

Noting Facebook’s new Timeline design, I created a good, original, header image and formatted our Facebook page to take advantage of Facebook’s new preference for photos. I posted items with photos — like original blog essays I had written about the program and news about the show’s actors. Most significantly, I created a poll and two graphics (here and here) that would pique the interest of the show’s fans. Then — and this is crucial to understand — I promoted the poll and two graphics on the page specifically on Facebook advertising by targeting people who had “liked” “Buffy” and its spin-off “Angel.”

And it went viral:

facebook advertising

People voted in the poll, and their Facebook friends saw that they had voted. People “liked,” shared, and commented on my graphics, and their Facebook friends saw those actions as well. All in all, my page got thousands of “likes” at a CPC of $0.03 and a cost-per-like of roughly $0.28. And after my page had gained a large following, then I used inbound marketing (quality blog posts, news, updates about product releases, and so on) to get them to my “Buffy” website, where they would then see a call-to-action to purchase merchandise. And I have seen great website traffic and sales as a result.

Effective Facebook advertising is not about getting direct sales — it is about building a social following and interacting with them and then using inbound marketing to achieve your business goals. The more that skeptics such as Perla and Holiday understand this concept, the more that marketers will see the value of the platform and the website itself. Again, with all due respect to them, Facebook is not a Ponzi scheme — as long as you use the social-media network in the proper way. Inbound, not outbound, marketing. Effective social-media marketing is one part PPC, one part content-creation, and one part communications.

 The Dark Side of Facebook Advertising

Still, I do not mean to imply that Facebook is a perfect medium for marketers.

As Nate Elliott of Forrester notes:

But as good as Facebook has been at evolving to serve consumers, that’s how bad it’s been at serving marketers. In the past five years Facebook has lurched from one advertising model to another. Remember when the site charged marketers to host branded pages? Or when every page featured banners from MSN’s ad network? (You may choose to forget Facebook Beacon; Mark Zuckerberg would certainly prefer you did.)

Somehow Facebook still hasn’t stumbled upon a model that’s proven consistently successful for marketers, or that brings in the massive revenues to match the site’s massive user base. (The company made less than $4 in ad revenue per active user in 2011.) And its latest ‘big marketing announcement’ in February turned out to be mostly a tiny evolution of its existing ad model. At the same time, Facebook often stands directly in the way of marketers’ efforts to measure the performance of their programs.

And I am sure that I was not the only online marketer who was shocked recently to see the following at the bottom of my page’s posts:

facebook advertising

So, I had spent $700 to gain thousands of “likes” only to have my posts now seen by fewer than 30% of them unless I pay more to advertise that particular post? What was the point? If were still a journalist, I would ask Facebook one question: Is this the rate at which pages’ posts had always been seen, or is this new? If this is new, what was the general percentage before the IPO? Clearly, Facebook is now under financial pressure to increase advertising revenue. But it still rubs marketers like myself the wrong digital way.

Samuel J. Scott, a former journalist in Boston turned Internet marketer in Israel, is the founder and publisher of My SEO Software and Director of Digital Marketing and Communications and SEO Team Leader at The Cline Group. You can follow him at Google+, LinkedIn, Facebook, and Twitter. His views here and elsewhere do not necessarily reflect those of his company and clients.