Why Facebook's Daily Active Users Is Not The Number That Matters

A fracas emerges over the fact that not all daily Facebook users visit the company's website. Advertisers tell us why that's missing the point.

A fracas erupted on Tuesday over the number of Facebook's actual daily average users. But it's one that shed light on how Facebook is a publishing platform like none that has come before it, and may presage a turning point when the brand advertising world eventually stops placing such an emphasis on reach and starts valuing performance above all.

The brouhaha started when the New York Times' DealBook noted that, though Facebook claimed 483 million daily active users (DAUs) in the IPO filing it submitted last week, the social network also said that not all of those people actually visit the company's website on any given day. That number also includes users who access the service via its mobile apps and those who perform actions on a third-party site, like clicking the Like button next to a particular garment on a clothing retailer's site or sharing a concert ticket purchase with their friends.

If fewer people actually visit the website, the DealBook article wondered, does that have implications for Facebook's ability to monetize eyeballs? And if so, was this some shifty sleight of hand on the part of the social network to inflate its numbers and try to make itself appear more financially viable to potential stock market investors?

According to the people who should know--the people who advertise on Facebook--the answer is: Not at all. "For someone on the front lines of Facebook advertising, the daily active users has never been an issue," Sid Shah, director of business analytics at Adobe (which recently bought Facebook advertiser Efficient Frontier), tells Fast Company.

Judging Facebook's advertising revenue potential based on mass audience numbers, then, misses the fact that brands don't advertise on Facebook the way they do in other media, like TV or print. Conventionally, bigger has been better, because marketers haven't had an efficient way to place brand advertising in front of the specific audiences they cared about. So, instead, they looked for "reach," seeking to buy up the largest possible audience. While they knew that only a sliver of those eyeballs would actually respond to their ads, the bigger the initial audience was, the bigger their sliver would be. 

More Facebook Coverage

Be sure to read about the Facebook investors poised to make billions from the social network's impending IPO. And take a deep dive into our earlier profile of Mark Zuckerberg: Hacker. Dropout. CEO. Then compare the Zuck of yesterday with the Zuck who just penned a letter to investors. Plus, dig into all of the revenues and user numbers. Check back here for more to come in the days ahead.

In the new world, however, brand advertisers can order up exactly the audience they're looking for. "It's not like when you buy an ad on Facebook, it runs across all users," Matt Lawson, vice president of marketing for Marin Software, which places ads on Facebook, tells Fast Company. Instead, advertisers specify the specific people they want to see their ad--men aged 45 to 55 in Michigan who like NASCAR, for example, or women aged 25 to 40 on the eastern seaboard with at least one child. 

In this world, once you've reached the scale of Facebook, size just doesn't matter anymore.

"Advertisers don't care how many daily uniques Facebook has," Lawson says. "They care about how many impressions to the right audience they get." And so far, Simon Mansell, CEO of TBG Digital, tells Fast Company, brands aren't having trouble reaching that audience. "None of our advertisers are capping out," he says.

What matters more, in this new world, is performance--how well the ads do in getting users to perform some action, like clicking a link or getting someone to Like a brand page. 

Facebook is continually developing innovative new types of ad units, like Sponsored Stories, that leverage what it knows about who's connected to whom on Facebook to create word-of-mouth-type ads that simply weren't possible before a platform like Facebook existed. And they often work better than conventional display advertising. The social network is also continually refining its algorithms to match the right ads with the right users. As those ads deliver better results, Facebook will be able to charge more for them.

Because of that Marin Software's Lawson says, "If they didn't grow their users at all from here, they could continue to grow their revenue."

And it's those questions that preoccupy marketers today, says Adobe's Shah, not how big Facebook's audience is. Instead, marketers want to figure out the models for evaluating the ROI of individual impressions and actions. In traditional brand advertising, on TV or in magazines, there was no way to connect the dots between the display and consumer behavior. But now, increasingly, marketers are able to make those measurements. And it's those numbers that will count most going forward, at least on a platform like Facebook, not total reach.

In the meantime, though, one of the main reason why agencies have been interested in Facebook's number of users, Wildfire Interactive CEO Victoria Ransom tells Fast Company, was simply "directional," to underline to clients that Facebook is a platform they need to think about. Whether the actual number of eyeballs on the site on any given day is 483 million or a lower number, she says, "It's still a clear sign that Facebook is pretty dominant about where people spend their time, and that this is where brands need to be."

And as for the fact that some of the people that Facebook counts as daily users are actually off gallivanting on other sites? Marketers actually see that as a plus. Sure, they might not be able to serve up advertising to those people. But they don't have to--those users end doing their shilling for them.

"If someone purchases a product offsite, and they click ‘Share,' that goes to their [Facebook] Timeline, and then their friends see it," Adobe's Shah says. That's the holy grail of word of mouth. "It's a positive for us."

That activity benefits marketers (and Facebook) in another way as well. The more people share back to Facebook, the more the system knows about each individual user, and the more valuable targeting opportunities the social network can provide.

"They're collecting more information about what we like and do and our behaviors than anyone's ever been able to do before," says Wildfire's Ransom. "That's the unique and amazing opportunity Facebook has. It helps advertising in the long run."

[Homepage image: Flickr user Devar; Top image: Flickr user mandiberg]

E.B. Boyd is FastCompany.com's Silicon Valley reporter. Twitter | Google+ | Email

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3 Comments

  • Terry East

    The value of Facebook is its ability for individuals to connect with their "Tribes." Facebook is not just for big advertisers/companies. There are opportunities for the "users" of Facebook to monetize their value using the platform's social tools... and application extensions to the platform. New monetization models will evolve over time.

    Facebook is an ecosystem.

  • steve moskowit

    Amazon ratings move products directly but Facebook ratings  (Like/Dislike) will serve advertising only indirectly, if at all.  Facebook will have to make recommendations the way Netflix does, by meta-analysis and conjecture, at times recommending movies for all the wrong reasons.  From what I can see, Facebook ratings reveal a person's sense of humor, political stance, or their opinion of an opinion;   otherwise, catering to people who click "Like" buttons might work if they're teens, although the teens I know never look at ads and don't have money to spend.

  • Kevin Lenard

    When was the last time you heard all the global phone companies argue about how valuable their daily users were, versus how many customers rent phone lines?  They don't because their business model as a social medium is not based on a fantasy about what makes their medium valuable to consumers.

    Hm.  This 'voice in the wilderness' continues to wonder 'what if'.  What if, like anything that has ever qualified as a 'social medium' (e.g. the phone), Facebook, Twitter, etc. have just garnered a lot of visits and activity because they're new and thus fun to check out and experiment with. As the 'newness' wears off and people get sick of 'push marketing' in these new media (it's just 'telemarketing' in a new guise, folks) they shut it out and we begin to accept these media for what they are: PR platforms, NOT advertising platforms -- to the author's point: "...the holy grail of word of mouth." 
    In other words, these social media will eventually 'bottom out' not as ad media, but media that people use to communicate.  People do not communicate on advertising media.  If marketers do a good job on ad media with an insightful, entertaining campaign, people talk about it (word of mouth) on social media, ergo 'social media' are only useful for 'listening/research/PR', NOT for advertising. We can put nifty tools on them to help people talk about brands, but we can't hijack conversations. Oops! Nobody in the shrinking world of ATL wants to hear that Facebook and Twitter aren't the next platform for 'push marketing', however...

     "It is difficult to get a man to understand something when his salary depends on his not understanding it."

    Upton Sinclair (from: I, Candidate for Governor: And How I Got Licked, 1933

    A summary of this 'contrarian' POV in this post: http://advertisingbusinessmode...