Good news for beleaguered Facebook fans: All the weeping and teeth-gnashing about the “failure” of the world’s biggest personal publishing and content-sharing platform represents a complete failure to understand where Facebook’s real economic value lies.
The tear-streaked, angry red faces, of course, belong to Madison Avenue and Wall Street, institutions famous for opposing any threat to their power and their ancient ways of operating.
General Motors, most traditional of the giant traditional advertisers, set off the mass chanting of “ad revenue, ad revenue” when it pulled its $10 million ad buy from Facebook days before the IPO. But Facebook’s current and potential value has far more to do with connections, e-commerce, and data than with the ad industry’s anachronistic appetite for paying to stick traditional digital ads and banners on the site.
Facebook is about replacing traditional ads with shared content; it’s about new ways of sharing with friends and strangers, not old, failing ways of shilling for products. Facebook, in other words, is not friends with the Madison Avenue establishment.
The commercial importance of Facebook and content sharing was underscored recently when market research firm Nielsen updated its long-term survey on which media forms are most trusted and most affect people’s decisions, especially buying decisions. Confirming previous findings from 2007 and 2009, Nielsen’s 2012 report declares the recommendations of friends are still the leading purchase influencer, followed by the recommendations of strangers online. The new information from Nielsen is that the trustworthiness and influence of traditional media and ads have suffered a steep drop since 2009.
The Nielsen Global Online Consumer Survey 2012 involved roughly 25,000 people in about 50 countries around the world. (You can download the complete Nielsen report if you give them contact information.) Take a look at the chart my agency produced comparing Nielsen’s 2009 and 2012 results. As anyone can see, public trust in traditional ads and media plummeted by about 29% on average. For TV and newspapers, the drop was a steeper one-third. Considering all traditional advertising and brand messaging, less than half the online audience reported trusting these media or being influenced by them.
What I call “traditional” digital advertising–banners, online video ads, display ads on Facebook–perform even more dismally. Traditional ads perform even worse online than on TV or paper, apparently.
But 92% of all people told Nielsen they trusted and were influenced by friends online and 70% feel the same way about strangers’ opinions online.
These numbers mean, at a minimum, that Chief Marketing Officers of the world’s Big Brands have stopped (or should stop) dreaming about recruiting new consumers with expensive TV spots or magazine spreads. Instead, they should be dreaming that a friend or a stranger shares an online link to a piece of content authored by their brands.
This is the advertising world’s new dream because Nielsen’s numbers and a lot of other research indicate that such social sharing of brand content is, by a 2-to-1 factor or better, the most effective way to generate purchases. So brands don’t really want to deliver messages directly to audiences anymore; brands prefer that friends deliver the brands’ messages to friends and strangers online. Even Coca-Cola, sophisticated but very conservative and traditional, leapt on the “contagious content” bandwagon early this year, vowing to shift its advertising strategy to content their consumers will share.
Other research and simple arithmetic (900+ million users) show all this content sharing is most likely to happen on Facebook. Given the arithmetic, this will continue to be true for the foreseeable future.
Facebook will flourish, in other words, because it is the place where nearly a billion people currently share content that causes others to buy things. This is why Facebook is becoming a center of social commerce. This is why its value will grow exponentially based on its growing share of e-payments and the ad industry’s growing reliance on the consumer data it houses.
It doesn’t take a genius to figure out how Mark Zuckerberg and his shareholders will make money on this exploding phenomenon.
The Great Facebook Panic began a month ago when General Motors rattled the markets by announcing that “paid ads on the site have little impact on consumers’ car purchases,” as The Wall Street Journal reported. GM added, however, that it was going to continue spending about $30 million a year creating content for its various Facebook fan pages because it believes, as CMO Joel Ewanick told Forbes, that Facebook is a good place “for engaging with our customers.”
This prompted me to tweet that GM was “clueless” about the purpose of Facebook and Facebook advertising. Without belaboring the arcane details of social media engagement, the primary reason to buy an ad on Facebook is to drive your audience to engaging, contagious content you have posted there. Posting great content and not advertising it is a missed opportunity. Conversely, advertising while posting boring content or not posting frequently enough is an equal waste of money and time.
GM’s Facebook ads “didn’t work” because their content is bland, random and not very compelling or shareable. Comparing the metrics of various carmakers’ Facebook pages, GM ranks near the bottom with roughly 1% of its “fans” having liked, shared, or commented in the past seven days. Brand pages in general have a 5% average for such fan engagement.
GM isn’t alone in failing to understand how Facebook or shared content really works. The financial press and Wall Street’s analysts also have proven pretty clueless about the engines that will drive Facebook’s value. (The shining exception is thestreet.com and Needham analyst Laura Martin. Everyone thinking about these issues should read Martin’s take.)
But the rejection of Facebook’s IPO has been largely based on the advertising and finance establishments’ futile attempts to preserve the past, not on Facebook’s inability to grasp the future.
Still in the mood to sell some stock? Thinking about Facebook might spur you to sell your shares of GM.
[Full disclosure: My wife and I jointly own 300 shares of Facebook. We got 200 shares at the IPO price of $38 because we have an account with Morgan Stanley. The other 100 we just bought at $26.]