A few days ago I posted a comment I had written on an article published regarding the possibility of a post-Facebook world. The author was positing Facebook’s ultimate demise in the hands of competing social networks and asked his readers if they could imagine themselves in a world without FB.
In my opinion the debate wasn’t correctly framed: competitive forces aren’t strong enough to put the social network pioneer out of business. FB’s shaky revenue model is.
In the wake of Facebook’s IPO upheaval, I read a couple of interesting articles showing there might indeed be some ground under the feet of those who stand looking, shaking their heads, at the Stairway to Heaven offered to us by Wall Street.
One such article related to a study paper published by a pair of math wizards hailing from Zürich, Switzerland. Using a simple but solid math model and an ‘estimated profit per user per year of $1, the Swiss study concludes that FB is grossly overvalued: the social network would not be worth anywhere close to a cool $100 billion, but somewhere between $15 billion and $30 billion. Much less cool.
Some expert even downgraded the estimate bracket, underlining a shortcoming of the model — user attrition was not taken into account. Somewhere else, a commentator emphasized on the contrary that FB’s revenue model would be boosted when its management adapts the business model by changing the way ads are served.
FB’s revenue model is based on the capacity of the social network to serve advertising relevant to the personal demographics of each of its users. This is the crux of the issue, since the potential capability of FB to customize your ad experience has been the subject of much ink spill.
Yet, I contend that tailoring ad is only one side of the coin. The FB side.
The other could be summed up in this question: “Do you even look at FB ads?”
Another blog post published on Tech Buzz tackled the issue with a severe “Facebook is a fraud” headline… and words to back it up inside the copy. According to its author, the post contends that Mr. Zuckerberg and investment bank Morgan Stanley are knowingly selling fool’s gold to the suckers-born-every-minute that we are.
Among the sources quoted in this post, one poked me in the eye: an article published in Forbes about General Motors’s decision to stop advertising in Facebook. The article turned out to be about comparing the odds of SuperBowl advertisers making similar decisions. But I followed the story to Yahoo News, and indeed GM doesn’t like FB ads anymore and recently decided to reallocate a $10 million/year budget elsewhere.
Wow. This can’t but have you pause and think.
Corporate America is notorious for sorely lacking in the department of “Advertising ROI Control”. Since David Ogilvy defined ‘branding’ as the nec-plus-ultra of advertising, Madison Avenue has been all about selling ‘the value of branding’.
Direct marketers —who know the value of a dollar— characterize this mantra as “blowing smoke up your ass.” We, small business owners, tend to rate the latter as ‘probably more right’ than the former.
After all, take care of the pennies and the dollars will take care of themselves.
So if GM pulls out of FB because “paid ads had little impact on consumers“, the problem must have been glaring and glowing in the face of their advertising department for quite a while. The light bulb must have lit up one bright shiny day… A bean counter must have found that 3 new car orders on the books after a cool million-buck investment in an ad campaign wasn’t so hip after all.
GM’s pullout tends to confirm that FB ads aren’t working that well, and that the eye-tracking study I alluded to in a prior comment might be just right on the money. Since FB’s business model and ad revenues are paired tighter than Siamese twins, that can’t be good news for Mark Z and his friends in the Hamptons.
As if it weren’t enough bad news, doooooong rung another knell: following revelations that FB’s institutional investors were the only ones to be appraised of estimate downgrades during FB’s IPO —such news having been kept from retail investors— a class action lawsuit has been instigated against Mr. Zuckerberg et al. in California.
How does this hubbub relate to us all, small business owners?
Well, in two ways.
Facebook performs a valuable service by allowing us to share things we like, things we do, things we see, more often and more widely than we would in our everyday lives. Facebook fulfills its mission as a true social connector in the virtual world.
But there lies the catch. I contend that Facebook was never branded as a business vehicle. It is meant to “remain always free”. The Facebook experience is the quintessential free ride. So much so that we tune out FB ads and shun salesy posts in Fan pages. Al Ries and Jack Trout wrote extensivly about the phenomenon in their books on the Positioning Theory: the mind can’t easily manage changing its perception of a brand once it has been pigeon-holed somewhere.
I see friends starting to advertise on FB. I say: pay attention to your return. Do people see your ad? Do they contact you?
The other way these events should affect us relate to the time we spend on Facebook tuning up our Fan page, socializing with other business owners, spreading the good news about ourselves, etc., in the hope of drumming up some business.
Not to say that Fan pages aren’t a genuine communication channel. They can be. But how big exactly?
My friend marketer extraordinaire Mike Maunu just shared an interesting statistic on his Wall: Facebook disclosed earlier this year that the average post on a Fan page reached only 16% of the Fans. Our own tests on the LocalRanker Fan page show a below-average engagement comprised between 4% and 7%.
‘Your content sucks”, you might say. And you may very well be right. Still, 16% is nothing to call home about, don’t you think?
Remember this percentage is just Fans looking, commenting, liking, sharing.
Not Fans buying from you.
As small business owners we have to allocate our time wisely. Statistics, studies, ripples in the pond… All coincide to tell us that we might be well-inspired to weigh our options carefully: should spend time marketing my biz on Facebook, or would I be better off working on some other form of marketing… e.g., preparing a killer offer to mail to my existing client list?
Mike’s post and the other blog posts got me thinking these last few weeks.
My 2 cents: Treat Facebook as a channel among many. Not as your main communication asset.
Or you risk waking up one day to the fact you lost much more than those fools who bought FB’s gold at $42 on IPO day and found themselves at $31 just a few days later.
To your success!