Social Media Advertising A Dud: 62% Of Americans Say "Social" Ads Have No Impact On Purchasing Decisions

Tyler Durden's picture

One of the great "paradigms" of the New Normal tech bubble that supposedly differentiated it from dot com bubble 1.0 was that this time it was different, at least when it came to advertising revenues. The mantra went that unlike traditional web-based banner advertising which has been in secular decline over the past decade, social media ad spending - which the bulk of new tech company stalwarts swear is the source of virtually unlimited upside growth - was far more engaging, and generated far greater returns and better results for those spending billions in ad bucks on the new "social-networked" generation. Sadly, this time was not different after all, and this "paradigm" has also turned out to be one big pipe dream.

According to the WSJ, citing Gallup, "62% of the more than 18,000 U.S. consumers it polled said social media had no influence on their buying decisions. Another 30% said it had some influence. U.S. companies spent $5.1 billion on social-media advertising in 2013, but Gallup says "consumers are highly adept at tuning out brand-related Facebook and Twitter content." (Gallup's survey was conducted via the Web and mail from December 2012 to January 2013. The survey has a margin of error of plus or minus 1 percentage point.)

In a study last year, Nielsen Holdings NV found that global consumers trusted ads on television, print, radio, billboards and movie trailers more than social-media ads.

 

Gallup says brands assumed incorrectly that consumers would welcome them into their social lives. Then they delivered a hard sell that turned off many people.

 

More recently, changes in how Facebook manages users' news feeds have hindered brands' ability to reach their fans. Rather than a largely chronological stream, Facebook now manages the news feed to feature items it thinks users will want to see.

 

The result: Brands reached 6.5% of their fans with Facebook posts in March, down from 16% in February 2012, according to EdgeRank Checker, a social-media analytics firm recently acquired by Socialbakers.

One case study:

Indian Road Cafe in New York City estimates it spent about $5,000 on Facebook ads, and its page now has about 13,000 fans. "But the return is really disappointing," says co-owner Jason Minter. "Unless you spend to boost a post, you only reach 300 to 400 people. I've certainly noticed the loss of organic reach. You spend all this time, and unfortunately, the return is not there." Mr. Minter says the restaurant still uses Facebook, but in a more targeted way, and is looking to a new website and other digital marketing approaches rather than building up the Facebook audience.

Another:

In May 2013, Ritz-Carlton Hotel Co. bought ads to promote its brand page on Facebook. After a few days, unhappy executives halted the campaign—but not because they weren't gaining enough fans. Rather, they were gaining too many, too fast "We were fearful our engagement and connection with our community was dropping" as the fan base grew, says Allison Sitch, Ritz-Carlton's vice president of global public relations.

 

Today, the hotel operator has about 498,000 Facebook fans; some rivals have several times as many. Rather than try to keep pace, Ritz-Carlton spends time analyzing its social-media conversations, to see what guests like and don't like. It also reaches out to people who have never stayed at its hotels and express concern about the cost.

 

Ritz-Carlton illustrates a shift in corporate social-media strategies. After years of chasing Facebook fans and Twitter followers, many companies now stress quality over quantity. They are tracking mentions of their brand, then using the information to help the business.

"Quality over Quantity" means the days of blindly scrambling to gain followers no matter the cost, are over.

"Fans and follower counts are over. Now it's about what is social doing for you and real business objectives," says Jan Rezab, chief executive of Socialbakers AS, a social-media metrics company based in Prague.

 

When many companies joined Facebook in the late 2000s, they used it as another brand website where they provided links, contact information and monitored consumer gripes. Then, they got caught up in the numbers game, trying to rack up raw masses of fans and followers, believing they were building a solid marketing channel. But that often wasn't the case.

There is the engagement issue. But the main reason behind the growing disappointment with social media advertising is what we explained back in January in "It's A Click Farm World: 1 Million Followers Cost $600 And The State Department Buys 2 Million Facebook Likes" - in short, pervasive click fraud and fake followers, the scourge of any advertising IRR analysis.

Another reason companies are looking beyond fan numbers is that the numbers are easily gamed. Researchers say many fans are fake, or automated, accounts designed to inflate numbers.

 

Italian security researcher Andrea Stroppa says he found a new breed of sites offering Facebook fans or Twitter followers for pennies. In experiments, Mr. Stroppa paid 42 cents for 700 retweets and seven cents for 100 likes on a Facebook post.

For now, however, companies stumped for revenue leads are still using social media: "while companies are adjusting their social-media strategies, they continue to advertise on Facebook. First-quarter net income nearly tripled at the social-network on a 72% increase in revenue."

In other words the social-media ad spending model still works for some, like the Facebooks of the world: those who pocket the ad spend. As for the companies who do the actual spending - not so much.

Still, with the deteriorating finances of the US consumer directly impacting the discretionary spending vertical, one thing is certain: as companies become increasingly more cash strapped their ad budgets will dwindle, which in turn will impact how much money is allotted to the "New advertising paradigm", and sooner or later ad purchasing managers will revert to old and familiar forms of advertising using legacy media.

What this means for the generation of social media companies, still incubate in private at stratospheric valuations or going public assuming virtually unlimited (ad revenue) growth is still unclear, but is hardly optimistic. Because once the ad spending plateaus and reverts to a downward trendline as seen in virtually all other ad models, the current infatuation with "eyeballs" will end with a bang, as it did over a decade ago. Because while everything else changes, it never is diferent this time.

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RadioactiveRant's picture

So.... I should buy FB, TWTR?

All news is good news.

Pladizow's picture

They are a hinderance and i make a mental note not to buy from a pestering source!

knukles's picture

My sentiments exactly.
I even tell the political phone callers "Thank you for the call in the middle of (dinner, taking a dump, whatever) so you can put me down for NOT voting for ...you/he/she/it/the Goat..  because of your annoying calls.  And I mean it."
Same with regular ads.
I'll usually NOT buy the crap.

RevRex's picture

Meaningless poll, as only 5% of Americans think they are of less than average intelligence.

French Frog's picture

My feeling is that many of those 62% have no idea that they are already so conditionned and don't realise that Ads actually influence their purchasing decisions in ways too subtle to notice.

Ignorance is bliss as they say...

mmanvil74's picture

The power of social media does not favor large brands, it favors real people that have personal connections and tight groups of personal followers because they are recognized and trusted in their circles.  

Social media isn't about "branding" its about people, which is why large companies are frustrated with social media.  

I expect social media to help bring down the centralized hierarchy of multinational globalism, and replace it with decentralized referral networks and community based trading hubs.

Top Gear's picture

What is social media, and who uses it?

RadioactiveRant's picture

Kids, those most likely to be unemployed. Marketing men chasing the debt dollars.

fx's picture

the so-called social media are not social at all. quite the opposite. cultivating group pressure, mobbing and herd-behavior.

oh and by the way, those 62 %: Are these the same 62% who think that their opinions are not shaped by the daily bombardment with misleading half-truths, lies and propaganda by big media? the same 62% who think that they have nothing to hide and therefore, need not care about big brother#s invasion of their privacy?

Looks like that. self-perception is a beast sometimes....

RevRex's picture

I once signed up for Facebook trying to hook up with some young pussy after I retired from work....  It was good and fresh, and I never came down with any stds afterwards.....

HardAssets's picture

I avoid them.

The spying is bad enough, those guys are in your face with it and you'd have to be a moron to voluntarily go along with it.

 

Rentier88's picture

What ads?  Doesn't everyone run Adblocker plus?   Does ZH even have ads?  I wouldn't know...

Illya Kuryakin's picture

Influencing 35% is a dud?

post turtle saver's picture

that's what I was thinking... the poster needs more seat time in sales and marketing if they think influencing 35% of a billion subscribers is a dud campaign... hell most shops are happy with 10%

CClarity's picture

85% of television viewers say ads have no influence on their purchasing decisions ...

dontgoforit's picture

The only ads that 'influence' us are 50% off clearance....it's all we can afford.

Ignatius's picture

Let me know when there's a 50% off clearence for Ukrainian brides, 'cause according to the side-bar these women are trying to reach me right now.

DeadFred's picture

Which proves that 85% of TV viewers and 62% of social networkers are totally ignorant of how the mirror neurons function in your brain. This proves that social networkers are 23% smarter than TV viewers.

fx's picture

wouldn't be surprised if 50 % of those 85 % would as well say that there are no ads in TV to begin with...

hazden's picture

Because they used their DVR to skip over them.

CPL's picture

Purchases can only be made if people have money.  That simple.  In this case, 35% of the population have enough money and time in their lives to buy something.  Then again 10 years ago the question would have been much different.  It would have been "what are you planning for your upcoming purchases".  Then people would list the various knick knacks and general stuff that gets stored in a garage.

Today however, people are slightly more concerned with rising food prices, fuel, heating, electricity, roof over their head.  Basic staples have become the 'big purchase'.

plane jain's picture

Yep.

Spouse: We are tight on money.  You really need to watch spending.

Me: All I have bought is gas and groceries for the last 10 days.

Spouse: Cut back on groceries.

Of course said spouse was a bit grumpy when I said this weekend the only meat I have on hand is lunchmeat, a pack of hot dogs, a pound of frozen hamburger that is spoken for, and some frozen chicken breast.  'Cause meat is too expensive to purchase speculatively, as in "this looks good, I'll take a package home and figure out a meal with it."

CPL's picture

Got room for a garden and chickens?

$200 for a chicken coop and some chickens.  6 chickens you'll get 4-6 eggs a day depending on the time of year.  Over the year the girls will lay 1788 eggs.  Or 149 cartons of eggs with the average retail price of say, 3 bucks.  The girls, if well fed and taken care of, will live decades making eggs and keeping the area free of mosquito, black flies, deer flies, ticks, garden grubs, horse flies, crickets, bugs in general.  Plus chicken shit is excellent manure.  Chickens are a multipurpose food factory. 

Any case by the numbers...

  • This amounts to 447 dollars per annum in "gain".
  • A payoff period of 5 months for the initial investment of $200. 
  • The net realized cost avoidance is $247 dollars for the first year.
  • The protein your body needs along with the complete amino chain is there as well.  If you can't get beef...then the protein needs to come from somewhere.

For the additional investment of a rooster of about 2 bucks, free or accidental sexing of one of the 'girls' ("Dad why is that chicken on the other chicken?").  Plus building another hutch for $200 (need it a bit bigger than the first one).  You let the girls brood a clutch and all those hatched chickens are meat.  Takes about two months to make a decent sized chicken for a roaster.

The rooster incidentally acts as the defence mechanism for the hutch and will kick the shit out of anything it thinks is a problem.  So if you have pets, you have to get the rooster used to the pets by socializing them as chicks.  Set the rotation of roasters (the ones you are going to eat) and leave your best laying hens to do their business.  It keeps the fridge and freezer full of fresh, organic chicken and eggs (they come in all sorts of shapes, sizes and colours).

Bohm Squad's picture

"Social Media a Dud"  ...fixed it for ya...

thatthingcanfly's picture

For me it has a negative impact. I make a note to NOT buy the products/services that are vomited at me by these annoying ads.

thatthingcanfly's picture

Thanks for that. I didn't even know what a hosts file was until just now.

I'm such a noob.

CH1's picture

I make a note to NOT buy the products/services that are vomited at me by these annoying ads.

I avoid products associated with any intrusive, obnoxious ads.

pods's picture

The whole reason that many are on Facebook is that they can't afford to be out doing something so they are busy creating the impression they did so their fake friends can adore their fake posts.

pods 

NoDebt's picture

What's Facebook?  Actually, I'm on it, or so I've been told.

My wife set up an account for me.  I played around on it for a couple weeks about 5 years ago.  Got in touch with some old friends from High School, seemed pretty cool at first.  Then I had to listen to all those people drone on about EVERY LITTLE INSIGNIFICANT THING GOING ON IN THEIR LIFE.  My old H.S. girlfriend talked about how she accidentally froze a fly in her freezer.  Another friend reposts everything in the world about the freakin' SC Gamecocks.  Etc, etc.

It was at that point I realized why I didn't stay in touch with them in the first place.  

thamnosma's picture

It was a huge deal for the fly.

MeelionDollerBogus's picture

Maybe but there's still plenty of people out, maybe spending money, maybe spending less than others, using mobile facebook apps to update directly from a phone.
Then there's people out on a bus, a date, walking down a street but not looking around, playing farmville or something which is attached to facebook.

Jerk_Store's picture

The whole reason that many are on Facebook is that they can't afford to be out doing something so they are busy creating the impression they did so their fake friends can adore their fake posts.

 

Don't you enjoy the duck face selfies?

Bryan's picture

Just answer "Don't know" to these stupid polls.  Wouldn't it be funny if the results of all of them was 90% Don't Know?  lol

dontgoforit's picture

That would probably be closer to reality!

NotApplicable's picture

Funny right up to the instant some politico decides it's good fodder for a mandate, leading to further indoctrination.

The Axe's picture

Social media....maybe....but consumers never poll correctly or truefully 

22winmag's picture

connect.farcebook.net sure seems to have a stranglehold on ZH

Dazman's picture

I think social media is a doosy, so I want this to be true, but who would really acknowledge that an ad had influeces over their purchases!? It's subconcious most of the time, so of course they say no.

FrankDrakman's picture

Marshall Macluhan noted this same effect in earlier times. In "Understanding Media", he wrote "

This is like the voice of the literate man, floundering in a milieu of ads, who boasts, "Personally, I pay no attention to ads."

?(Well, at least he thinks so. )

GooseShtepping Moron's picture

Why do you thinks it's impossible that some people really don't pay attention to ads? The whole idea that advertisers are subconsciously programming people to make decisions they otherwise would not make is by far the sillier of the two propositions.

Smegley Wanxalot's picture

Proof that 38% of mankind is completely retarded. 

60% of the remaining 62% are also completely retarded because they use social media at all.

MeelionDollerBogus's picture

I like twitter.
When various bad agents in the world do bad things, especially if there's video to prove it, Twitter seems a highly efficient way to get a picture, video, warning with categorized tags (hashtags) out.
Like the crimes Israel does to Palestine, or a drone strike someone says didn't really happen or they "can't comment on".
Dronestream, a twitter account, documents EVERY drone strike they can get their hands on the information for. Listing location, date, time & how many civilians were killed.
Documenting that is important and it can't be important until it's socially spread so people KNOW the terrorism their tax-dollars support.

Bro of the Sorrowful Figure's picture

Real Reason For Social Media Use: To escape mundane life filled with debt, increasingly bad health and lower standards of living, and to continue the charade that everything is okay, while also fulfilling a pathetic and vain desire to be accepted and liked and be a good, patriotic member of society, dutifully and narcissistic-ly checking facebook and clicking on ads like the overlords want, not for one second taking the risk of entertaining a strange or different thought that might ever so slightly start to break down your world view.

MeelionDollerBogus's picture

"That sheep isn't bleating loud enough! BAH-BAH-BLACK SHEEP!!!"

buzzsaw99's picture

careful, that's a $165B company you're talking about there bub.

Max Cynical's picture

"Virtual Bagel"

FaceBook Fraud...http://youtu.be/oVfHeWTKjag

I'd like to see a survey of businesses that are spending money on social media advertising.