Can Facebook ever make advertising on its social network work?



It has been estimated that the average person living in a city today will be exposed to about 5000 ads a day. Of course, we are oblivious to the majority of these, but like SPAM, a small percentage of ads will be seen, and an even smaller percentage will result in a consumer taking some sort of action. When it comes to ads provided by Facebook and Google, the percentages of people noticing an ad and then clicking on it, are tiny. The average click through rate (CTR) of Facebook ads in the US) is 0.051%.

Of course, what actually happens when the user clicks on the ad is the big question and this is where Facebook and Google diverge in that the audience both advertising platforms target, and the outcomes they are trying to achieve, “may” be different. The emphasis here is that although Google and Facebook advertising is similar in some ways, it differs markedly when it comes to ads driven off search. With Google, ads have a higher likelihood of being shown when someone is actively looking for something that might be related. It makes sense to show someone ads for shoes if that is what they have just searched for. On Facebook, ads are more of the billboard variety, they are simply there as you interact with your news feed. Because there is no intention when the ads are presented, users are far less likely to click on the ad and even if they do, to act on the site they arrive at.

Understandably, both Google and Facebook concentrate on their end goal which is to get people to click on an ad so that they can charge for it. It doesn’t really matter to them what happens after that. In order to support this financial model, Google and Facebook have dashboards that provide detailed information and graphs of a range of measures. Facebook couches this in terms of “reach” and “social reach” for example. Reach refers to the number of people who “saw” the ad. Social reach refers to the number of people who saw the ad after it had been liked by someone. At the end of the day, these are fairly meaningless numbers but they fill out the page that would just consist of the amount of money you have paid for each “click” or “like” (anything from $1 to $10+ per click or like).

Facebook’s advertising has been likened to a form of Ponzi scheme. Although this is probably a little harsh, the sentiment is that there will be a never-ending supply of people who want to try to advertise on the platform, most of whom won’t end up becoming repeat customers for lack of measurable benefits.

For Facebook of course, advertising is the only way they can currently make money and they face a significant challenge in growing that business. Facebook’s Graph Search, if it takes off, would provide a possible means of emulating the functionality of Google’s targeted ads, although in a more limited way. Even here though, Facebook is going to struggle.

What Facebook has done is to try and provide advertisers with a better experience through its recent purchase of Atlas Solutions, an advertising platform previously owned by Microsoft. Interestingly, the software was part of a $6.3 billion purchase by Microsoft of advertising company aQuantive in 2007 when Microsoft CEO Steve Ballmer was trying to make Microsoft more like Google. Now that Microsoft has decided to make itself more like Apple, it sees no value in the advertising market which is actually quite sensible given its massive losses in that sector.

Facebook is hoping that Atlas Solutions will provide more data for advertisers to help justify their spend. In a world where we are increasingly de-tuned to most of what is presented to us on the web and on our phones, this may prove an impossible task.