Is A 0.014% Ad CTR Facebook's Weakest Link?

Tyler Durden's picture

Courtesy of Bloomberg, we have our first impression of what advertisers' "efficiency" is for Facebook ads, and whether or not they will decide to use Facebook as an ad medium as opposed to a legacy wholesale advertising channel's like Google AdSense. Frankly, it does not look too hot: as the attached chart shows, the CTR on an ad campaign is a paltry 0.014%, or said otherwise 182,901 page views leading to... 26 clicks. Now of course, the amount paid for this exposure will be modest (although at $2.80 CPC this is astronomical compared to the likes of adsense), however the real question is what advertiser, for whom reader engagement, i.e., click thrus are important, will wish to subject themselves to this abysmal level of "interaction." it is probably no secret that for Google adsense, CTR is at least one order of magnitude higher. This also explains why anyone betting on the advertising model as being the primary driver of revenue growth will likely be disappointed. Naturally, there is the possible offset that the ad campaign was merely not engaging, or not that exciting, or not proper user targeted, but that is what Face Book is doing after all - it is trying to replicate adsense interest matching. So if Facebook is about ten times worse than adsense, just who will use it? We agree with Mark Gimein's conclusion, "Whether you’re a giant advertiser or a tiny one, you know
exactly how much value you get from a Google placement. For us, it was
just really hard to know what we were getting from our Facebook ads."

More from Mark Gimein:

For a brief period last fall, I was a Facebook advertiser. It came about like this: my fiancee, an artist, started a series of painting classes. Mostly she advertised by word of mouth, but as the term was about to begin there were still a few open spots. Like Google, Facebook has an extremely low barrier to entry for advertisers. It is almost as easy to advertise on Facebook as to sign up. You can start running ads with a commitment as low as a dollar. One buck.

 

The ad costs can be very low. Not just pennies but fractions of pennies for each time an ad is shown. We threw some numbers together in our heads. If only one in 500 people who saw an ad clicked on it, this was a great deal. Or even one in 1,000. And surely we could get those numbers, right? Especially with all of Facebook’s targeting options. We could target men, women, or certain age groups. We could (and did) use zip-code targeting to hit only people living in Manhattan below Central Park. Or those living close to the Metropolitan Museum. Or even men interested in painting who lived in East Side Manhattan zip codes.

 

Okay, that last one turns out to be a tiny group. But we tried that in combination with other small groups. We had ads with different images, and tried various text options. On most ads, we offered discounts. We even managed to (once) sneak an ad with an image of a painted nude through Facebook’s approval process. Even the nude didn’t make a difference. We didn’t get one viewer in 500 to click. You can see the numbers above. It was closer to one in 10,000. And frankly, judging from the fact that half of those who did click left the site within seconds, it’s pretty likely most of those were slips of the mouse.

 

For $72.80 we did get 182,901 ad views. If you lived in Manhattan and indicated an interest in any kind of art classes, you’re likely to have seen our ad. Actually, if you were in that group of one of our other carefully targeted sub-categories, you almost certainly saw it at least a few times. More likely, five or six. You just were very, very unlikely to click it.

 

That’s not necessarily a terrible result. I am sure others do much better. More important, click-thru is far from the only measure of an ad’s effectiveness. It’s very possible that those who saw an ad in the fall will hear from a friend about the classes my fiancee is teaching this spring and recall, “Right, those were the painting classes with the Facebook ads.” I get a kick out of the thought that many of our friends probably saw the ads out the corner of an eye.

 

I wonder, though, how much more value Facebook can squeeze out of this kind of advertising. Google’s strength was the combination of keyword targeting with easily measurable results. Whether you’re a giant advertiser or a tiny one, you know exactly how much value you get from a Google placement. For us, it was just really hard to know what we were getting from our Facebook ads.

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TruthInSunshine's picture

Past Primetime (before IPO), bitchez.

redpill's picture

The writing is on the wall (hah!).  Zuckerberg wanted to take it IPO while the star was still shining bright, he knows that Facebook could become obsolete overnight with whatever the next social media craze is.

Popo's picture

Exactly.

 

Look at the facts:  One -- Facebook is well capitalized.   It does *not* need money to fund operations or *any* planned growth.   (Which by the way, are the only valid reasons to IPO).   What this means is that the principals are looking to cash out.   Why now?

 

Two -- The rate of new users joining Facebook is *slowing*.  The star is already starting to wane. 

 

Three -- The roadmap includes things like "exansion into China".   It ain't going to happen.   There are too many (very well documented) FBI, CIA, NSA connections with Facebook.  The Chinese government has already raised the red flag.

 

Four -- Twitter is eating their lunch already with the under 18 set and Twitter's new foreign-government-friendly policy has positioned them *much* better for international expansion.   That's bad news for Facebook.

 

This IPO will be good for a short term pop -- *maybe*.   But too many smart people are already sounding the alarm on the question of "Why IPO when you're already cash rich?".   And Facebook has ZERO good answers for that.   This looks and smells exactly like a get-rich-while-we-still-can strategy.

Yes, it will work.  But not for the bagholders who buy the stock.

 

 

 

misnomer's picture

+1  thank you for posting the exact thougts of myself and pretty much everyone I know.  You have answered the billion dollar question "Why offer IPO when they don't have to"?

So, other than lining Zuck's pocketbook, what is the influx of capital going to actually DO for Facebook?

And, in my limited experience on FB, it seems to me they have alot of people that sign up, and never return.  So, are those people calculated into their revenue model??

zaphod's picture

And additional reason is to line the pockets for Goldman and other hedge firms.

Since FB already started selling shares privately, all of the bankers jumped in together, and now they plan to pump FB up to the retail market and cash out.

It's criminal that the bankers could buy FB for the past few years, and no one else could. Now they get to buy low and sell high...

If this thing opens strong, I'm going to short the heck out of it. $100B is absured, only bankers who already own FB could come up with that number....

Freddie's picture

When Corzine was at Goldman back in 1998-1999 - he and other firms pulled the same shit.   They traded the shares back and forth on IPO day to drive up real dog sh*t dot.bomb stocks to sucker the pubic.

chrisd's picture

They are looking to cash out because that is how capitalism works. You invest some money and then you look for a return. Peter Thiel has been invested since 2004 and this creates a liquid security, more so than the secondary market ever could.

Your China connection is true of all tech companies and is irrelevant. The question is whether they can capture that market, nothing else. 

With facebook, you can explicitly target only those you want. Women age 15 - 25, men under 30, etc. With Google adsense, you can't. There is a lot of momentum for a comapny that is only beginning to understand and tap its potential market. 

blunderdog's picture

The Facebook IPO is for the current owners and the bank that handles it.  It's going to be a massive ripoff.  This doesn't have ANYTHING TO DO with whether Facebook is going to be a long-term success.

The CTR is not important.  This is only about a decade-old industry.  It hasn't all been figured out, yet.  Market intelligence and data collection is where FB has real long-term potential. 

Banners and clicks was the first online-advertising strategy, and guess what: it sucked.  But you have to really think about this stuff if you want to benefit from it.  Just because you've got $72 and can place some online ads with that doesn't mean you're utilizing the potential of the service.

BTW: just as an aside--people are not really doing the Tylers a favor by clicking through ads unless they're actually interested in the products and likely to buy.  That just increases the cost-per-conversion and dilutes the click-through value, which are far more important metrics to the advertisers.

Don Birnam's picture

Tyler, this has already been discounted.

Why, just today, tech sage and the permanently-banned from any activity in the securities industry Henry Blodget, announced that "FB" should by no means be valued at the popular "$100 billion" capitalization suggested by the various financial "media;" rather, FB is properly valued at a much more reasonable, and more easily-digested by "retail" figure of $75 billion.

Jay Gould Esq.'s picture

Considering the source - the unindicted "analysis" peddler, Blodget - I believe this post both to be satire and sarcasm. 

Don Birnam's picture

+1

Frankly, "FB" is, I am certain, the high-water mark of this latest "bull trap" contained within the secular bear which commenced in '00.

Clayton Bigsby's picture

Zuckerberg to world: "It doesn't matter, cuz I'M RICH, BEYOTCH!!!  honk honk!!!

 

B-rock's picture

Their weekest link is that Facebook sucks.

CaptFufflePants's picture

Well maybe but they make nothig from mobile right now and the world in 5 years will be almost all mobile and in the next 5 years monetization of mobile usage will mature in such a way that Facebook will be uniquely poised to capitalize upon that, so it is possible for them to make a boat load of money from mobile users in the next decade.

 

Who knows.

TruthInSunshine's picture

Yeah, because they have a real moat in terms of business model and prohibitively costly barriers to entry, and things like Facebook rarely turn out to be faddish trends over a longer term horizon.

Hang on - my Packard-Bell PC speakers just exlaimed "You've Got Mail!" - I think I have an electronic mail on my AOL account. This is so exciting!

Be right back.

kappa's picture

Yes, it's hard to predict the trends and it's also difficult to measure the impact of the ads on Facebook but that doesn't mean that Facebook ads are not working. Actually I am confident that social media is a strong advertising mechanism today. I've been reading Ryan Deiss articles on the matter, they help me orientate better.

Newsboy's picture

Don't worry, Facebook is backed by the CIA, the ultimate insider "edge".

It'll do FINE.

NotApplicable's picture

It seems people forget what MSM saturation can do to drive eyeballs to what they want to be noticed.

As for future competition from upstarts (the next "big thing"), I'm assuming they'll just purchase it, unless Google beats them to it.

prains's picture

Fartbook IPO next

Seasmoke's picture

Fuckerberg screwing the Suckerbergs

Imminent Collapse's picture

What is the ad efficiency for ZH, Tyler?  I have to wonder when I see the likes of Cramer, etc. advertising on a site that regularly rips his ilk.

Tyler Durden's picture

That's a better question for the ad purchaser, not the content distributor.

TruthInSunshine's picture

Tyler, make sure you charge that carnival barker - Jimmy Jam Cramer - double the usual advertising rate.

Thanks.

sdmjake's picture

I always click on the banner ads (and then close them) in hopes it puts a few more pennies in the pocket of Tyler. (I average about 20 per day from the TOTUS ads alone) Don't know if it works but it can't hurt to try.

Support the HEdge!

Waterfallsparkles's picture

I also click on the adds to help Zero Hedge.  I am sure they get revenue from the clicks.

adr's picture

Zerohedge doesn't have a $100 billion valuation to justify. It just needs to pay for running costs.

MountainGreenhouse's picture

I do PPC and online marketing for a living.  That image is very biased, and whoever is running those campaigns CLEARLY SUCKS.  Facebook will never have the CTR of google, because people arent on facebook searching for a product or information, they are looking at friends pictures.  However I have a larger ROI with facebook than I do with google.

catacl1sm's picture

I don't know who junked you, but you are absolutely correct. Cost Per Sale (ROI) is MUCH more important than CPC. You have to have a well tuned website sales funnel along with a well tuned ad to decrease CPC and increase sales.

Bearish News's picture

$FB is going to be an overvalued POS, and I heard a guy on Bloomberg today say it could "eventually be a half a trillion dollar company" lol.

BUT ... yeah, 26 clicks is the smallest sample size ever and the ads probably sucked. I've made $ off FB ads for clients, but it is definitely a LOT harder than Google. Adwords > FB as a marketing tool. I can't see that ever changing. And it's not just about search ads, it's about the content network too.

BullishBear's picture

Agree.  A CTR like that and you won't get anywhere.

If you're running lead gen, it is hard to beat the system as by the time a visitor lands on your page, you already know there age, location, gender, likes and a number of other demographic info so you can custom tailor a landing page to them.  It's quite obvious whoever ran that campaign had no clue what they were doing.

We spent over $300k on FB ads last year profitably.  They're not as profitable as other advertising mediums, but they are still a profitable place to advertise and very lax with what you can/can't advertise.

 

MountainGreenhouse's picture

Oops double post, sorry fellas

CvlDobd's picture

I just logged into HRBlock using Facebook to pull out some old tax info. It's linked into everything. This isn't a traditional website with traditional users. It will eventually be used for payment processing, etc. this is a MA, V, AXP plus MySpace plus google type of company. I'm not saying the stock will never go down but this thing will be hot for a while.

It's the CIA pet site. Why fight it with money? There's plenty of other ways to lose just as much money by shorting. How people short something without a chart is beyond me. Must be a long ball short brains type trader.

Sometimes the fight just isn't worth it is all I'm saying.

CvlDobd's picture

None of those companies are CIA wet dreams.

None of them are able to be used to log into nearly every corporate website known to man. That's a different type of ad usage that google type statistics don't quantify.

Ima chart guy, have no interest in IPOs. It just seems like a bad idea to be a Facebook vigilante when you know the offer is going to be cheap and well supported by TPTB to keep the farce going.

Just saying.

Jay Gould Esq.'s picture

Ty - you just put Friend Finder back on the map: the flea-ridden pup is up over 16% this session.

Freddie's picture

LOL!  F****g Grope-On!    WTF is DANG?  SOunds like something Joe Dirt said.  DANG!

Great chart Tyler(s).

tarsubil's picture

Using FB for payment processing? That just seems completely insane to me. Could you tell us a little more about that?

NotApplicable's picture

I've no info on the subject, but I'm assuming it would be little different than any of the others out there, like Paypal.

Instead of logging into paypal, you just would do it all from the comfort of your FB page. They would merely serve as a front-end to one of the major CC gateway companies like FIServ. Given the costs today for such services directly to merchants, there's plenty of room for an aggregator to add value. Especially one this large.

CvlDobd's picture

Exactly. They have integrated FB into almost every other corporate website. Cheap payment processing is a logical progression and non ad source of revenue.

Trying to take down this stock will be a tall task. I don't disagree with Tyler on the other IPOs being carp and subjected to the annals of history.

tarsubil's picture

My FB page has been stripped mostly of real info. Logging in to comment is one thing, using it as a cc seems like a giant impossible step to me.

tarsubil's picture

I just would never ever ever trust FB with any of my financial information. Sounds great but I don't know how many customers would use it.

CvlDobd's picture

You underestimate the FB love of your "peers" my friend.

tarsubil's picture

Most people I try to contact through FB now never reply. I thought it was that people weren't using FB anymore. Maybe it is just that they don't like me. 

Goatboy's picture

As far as I am concerned they are all under AdBlock. When I need any of their "services" I know how to search for them. There is nothing worth of mentioning left in modern advertizing.

pepperspray's picture

People who use FB are fucking broke.

TruthInSunshine's picture

Facebook is an advertising pipeline to all the indebted teens, high school grads, college students and recent college grads, clamoring for news of that next .99 cent Taco Bell Double Beefy Burrito deal.

Don Birnam's picture

Make that the Double Salmonella Beefy Burrito deal...and kindly pass the Charmin.

http://www.myfoxdc.com/dpp/news/taco-bell-linked-to-salmonella-probe-aft...