Social media marketing is a mirage!

March 1, 2009

If you show me one example of a repeatable and successful model for social advertising, I’ll eat my shoes (Non-repeatable one-off success stories don’t count.)

I have spent a good chunk of my time in the past year working with all major social ad networks as both a publisher and an advertiser. Social media marketing has been the main talking point for almost two years now. In virtually every conference and workshop that I’ve attended, social networks, social apps and social advertising companies brag about their ability to “leverage the social graph” to promote products better and more efficiently than is possible on the web. They are also very proud of their ability to “hyper-target” an ad to a very specific customer demographic. Yet, in the same breath they complain about low CPMs (payoff per 1000 impressions of an advertisement.) They will then put the blame for low CPMs on old-school marketing managers in brand companies for not understanding and appreciating this new phenomenon. “It’s just a matter of time,” they’ll claim. On the flip side, if you talk to brands you’ll see a completely different picture. Brands are actually quite aware of the rapid growth of social networks and bring up social media advertising in virtually every internal meeting. They even allocate some play money (or as theycall it: “exploring new marketing channels”) to experiment with this new phenomenon. The problem is, brand advertisement through social media-focused ad networks simply doesn’t pay off. So the experimental budget for social media advertising quickly disappears.

The bottom line is, no one has been able to effectively monetize (or profit from) the traffic on social networks. At least not yet! So the CPMs are low. There are no old-school evil marketing managers sitting in dark rooms plotting against poor publishers. The economy of social advertising simply doesn’t work, period.

A few months ago, I was interviewing a very seasoned candidate for our VP of Marketing position. At one point he said: “Advertising on social networks yields a very low CPM because interruption marketing does not work when a user is on a social network interacting with friends.” In simple terms, why would I click on an advertisement when I am looking at pictures of my friend’s birthday party posted on Facebook? I have heard this argument way too many times now, and I just cannot help but to flatly reject it. The argument is absolutely baseless (He obviously didn’t get the job. I immediately ended the interview when I heard the thoughtless marketing garbage.) There is no meaningful difference between social networks and other “non-social” websites in terms of users’ receptiveness to advertising. So what is the real reason behind low CPMs on social networks?

As always, the real reason is very simple. A few people have already alluded to it, but the reality is too grim for most social media-focused companies to accept. So they simply deny it and keep repeating the same lame stories. Here’s the naked truth:

There are three general categories of online marketing campaigns: Direct Response Advertising, Branding, and Niche Marketing.

  • Direct response advertising yields a low CPM on social networks because the ratio of page views to unique visitors is very high (there are way too many page views per each individual visitor.)
  • Brands aren’t really attracted to social applications because of their limited reach and lack of prime advertising zones built into their layout. Except for maybe MySpace, most social networks aren’t that attractive for brand advertisers either for similar reasons.
  • Niche marketing doesn’t really work because unlike popular belief, social networks do NOT have the ability to target profitable niches.

Let me dig a little deeper into each category:

Direct Response Marketing: These ads encourage users to take a quantifiable and measurable action, for example, sign up for a subscription service or order a get-rich-quick DVD online. The objective is sales, NOT branding. Go to any Facebook application of your choosing that is running a social ad network. Look at one of the ad units. What do you see? Keep refreshing the page multiple times. See what ads appear. I bet you see the following: IQ Quiz, Crush or Love predictor, Make Cash Quick, Run Your Car on Water etc. Shayan Zadeh wrote about this type of advertising a while ago. The fact of the matter is, the majority of revenue from social advertising comes from Direct Response Marketing. I know mobile offers alone generate 70% of advertising revenues for Facebook applications. Overall, I estimate at least 80% to 85% of the overall revenue of Facebook applications come from direct response marketing. I don’t know the numbers for Facebook itself, but judging from the frequency of this type of ads showing on Facebook sidebar, I would say at least 60% of Facebook’s revenue comes from such ads. There are two things wrong in this picture:

  • a) Direct Response Marketing offers the lowest CPM of all. In fact, most major publishers (such as myspace) with direct sales force, try to sell whatever inventory they have to Brands directly at high CPMs. They then turn to ad networks to fill in their remnant inventory, which may include direct response ad campaigns.
  • b) Unlike branding campaigns, direct response marketing works best if the users churn quickly! For example, you see an ad that says “Pay $250 for a kit that will make your car run on water instead of gas”. If you don’t fall for this ad the first time you see it, it is unlikely that you fall for it after seeing it 10 more times. In other words, this type of ads “burn out quickly”! They need fresh eyes. This is one area where social networks’ main strength, stickiness, works against them. There are too many repeat visitors and therefore, the CPM of direct response marketing is low.

To sum up, not only a larger than normal portion of social advertising comes from low quality direct response offers, the CPM of such offers is further downgraded because of the repeat users. Double whammy!

Brand Advertising: The days of spending big money on branding campaigns without measuring results are gone. Budgets are shrinking every day as the economy dives deeper and deeper into the recession. The impact of this is doubly obvious for social publishers:

  • Social applications are simply not a good place for brand advertising, period. Brands are looking for prime real estate. The canvas page for social apps is too small. Also, the app canvas is framed by the social network chrome from the top and often one side. To make the matter even worse, most social networks (with the exception of Bebo) show their own ads on the application page.
  • Social networks, on the other hand, have some potential for brand advertising because they are sticky. Brands follow the “3 impressions” rule. They need to repeat their message to the same user at least 3 times. Social networks can deliver this. There are a few downsides though. With the exception of Myspace and Bebo, other major social networks such as Facebook have not dedicated prime real estate to brand advertising in their design. Their design principles are too puristic and centered around their own brand. There are also the issues of demographic, reach and target county which I’m not going to dive into.

To sum it up, social apps shouldn’t be hopeful to get a good chunk of brand advertising anytime soon. Social networks, however, could have benefited from this had the economy not shrunk. MySpace’s and Bebo’s homepage advertising (where they skin the homepage for a brand) and Facebook’s branded gift campaigns are the only good example of branding on social networks that come to my mind. Too little for the size of this market!

Niche Marketing: This is really surprising. All major social networks that I’ve worked with drop the ball on this. Have you tried to create ads targeted towards the African American population using Facebook Social Ads? I have. Facebook doesn’t have ethnicity targeting, can you believe it? Let’s talk about targeting by interests. Go to Facebook Ads. Then create an ad and target it to Male users of any age who are interested in, let’s say, the game Halo (enter the word “Halo” in the keywords section.) Facebook estimates the number of such users to be a mere 116,000 (there are a total of 56 million users from US on Facebook). You have a much much better chance of reaching Halo fans through a video game site. People simply do not fill in the interests section or other parts of their profiles. In fact, I can dedicate a whole article to how Facebook is dropping the ball by not collecting the very essential information that it needs in order to become the leader in niche marketing. And Facebook is perhaps the best among all other social networks (that I’ve worke with) in terms of its ad targeting ability. The only rather useful targeting on Facebook Ads is across the age dimension (Have you seen the ads for the 30+ dating site?) But even that is rather limiting because most Facebook users do not enter their year of birth. Zoosk is one of the very few large social applications that make it mandatory for users to enter their age and ethnicity. It will allow us to do niche marketing in ways that no one else has done before.

In sum, social media marketing is an empty promise in its current form. Yes, you could potentially do creative things by leveraging the social graph (or so I’ve heard, I still have to see a solid success story.) But this alone will not compensate for all the negative factors that I mentioned above. Add a shrinking GDP to the mix, and you are guaranteed to see an underwhelming performance for social media-focused ad companies for years to come.

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4 Responses to “Social media marketing is a mirage!”

  1. Shobeir Says:

    Very informative!

    Welcome to the blogasphere Alex

  2. joe Says:

    great analysis – very much enjoyed, alex.
    follow up question on your comment: “There is no meaningful difference between social networks and other “non-social” websites in terms of users’ receptiveness to advertising.” I’ve heard the sentiment your candidate brought up quite a bit…yet you strongly disagree…what do you base this on? Just curious!
    Thanks!


  3. What a facinating blog. I’ve bookmarked it and added your feed to my RSS Reader

  4. Mark Says:

    Alex,

    Thanks for your insight. Very helpful,

    Question on your initial statement, wouldn’t you consider Zynga, or Zoosk for that matter, a repeatable and successful model for social advertising?

    Hear you guys are doing great. Keep it up.

    Best,
    Mark


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