Can Facebook Work For Brands? [UPDATE 3]

Brands

All this summer we have been looking at the effectiveness of Facebook for a variety of big brand customers.

Here is what we have discovered, and for Facebook it doesn’t make pretty reading.

Facebook ads don’t work for brands

Even with the ability of the user to determine how and to whom an ad is served with great demographic accuracy, Facebook ads have click-through rates of only 0.011-0.165%, compared to Google’s 0.4-0.7%.

A former Facebook intern, Cliff Chang, with disarming candour, admitted to this on the question-answering site Quora. Explaining why Facebook had taken down its own conversion-tracking tool, he admitted:

“Some hilarious percent of people who generated pixels never received a single impression on them.”

If Facebook can’t compete strongly as an advertising platform it won’t be able to dislodge Google’s dominance in internet advertising (in 2010, Google owned 38.9% share of US online ad revenue, compared to 4.7% for Facebook, and eMarketer estimates that Google’s share will increase to 43.5% in 2011). The appearance of Google+ means that Google may finally be able to add an element of social proof to their own search results, diminishing Facebook’s USP.

Facebook fan pages don’t work for brands

Facebook fan pages provide a great opportunity for celebrities like Lady Gaga and Taylor Swift to reach their adoring public. These pages have eye-catching headline figures for the number of “likes” they attract. However, we recently found that the vast majority of “fans” don’t actually interact with the Page.

We surveyed the 20 most-fanned celebrities on Facebook and found that the number of “core fans” is far lower than the actual fan count. (Here, we define “core fans” as fans who have commented more than average for the Page [1].)

The table below shows the data as of 12 May 2011. Eminem had over 41 million fans and Lady Gaga over 39 million fans, but their core fan counts are 575 and 1,231 respectively (just 0.001% and 0.003% of their overall fan numbers).

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These numbers are significant because of the way content from fan pages syndicates into Facebook users’ news feeds.

Unless someone has actively interacted with your page, they won’t receive your updates. Many brands launch a Facebook contest to boost their fan count, assuming that their future updates are now reaching the thousands or millions of people who clicked “like”. But that’s not how Facebook works.

Unless a fan actively participates in a brand’s Facebook Page and their activity on the Page has been continuous, the brand’s status updates will cease appearing in the fan’s Facebook stream.

Facebook is a great CRM network for brands who know how to use it, but most don’t.

[Update 1] Sheryl Sandberg of Facebook boasts of the 50 million “likes” a day which brands receive on Facebook. She is being disingenuous. There are few ways for brands to take advantage of this. Brands can’t access the list of fans who “like” them. Brands can’t examine what else these fans like (since Facebook’s F8 update, the graph API no longer allows it). Brands can only address these fans for a short window after the initial “like”. The bald truth is that a “like”, in 99.99% of cases, does not presage further interaction with the fanpage.

Apps should work for brands, but often don’t

A well-designed application on Facebook can produce a Niagara of valuable data about users, but only if

  1. users download it
  2. they opt in to sharing data
  3. there is an “off-ramp” leading them to spend money on the brand

Brands who have taken good advantage of this include film studio Warner Brothers, who delivered The Dark Knight as a pay per view Facebook rental and brand Starbucks, whose application has over 45,000 active users (and an all-time high of over 760,000 monthly active users according to appdata.com). But most brand applications do not follow through with serious ROI. No branded app (outside those from telcos and tech businesses with skin in the game) makes Facebook’s top 100.

The three pillars to Facebook’s business model we have examined all have major question marks over them. Advertising click-throughs are low, brand presence is a poor fit for the functionality of the fan page, and applications, whilst effective, are poorly understood and exploited by few.

It is clear that Facebook can be a great business. It could carve out a terrific niche delivering qualified audiences to entertainment brands who launch successful movie, TV and music channels. These brands will share some of that revenue with Facebook. It could offer a transactional interface based on local search, as Havas boss, David Jones has suggested. This would be supported by new location-based ad targeting functionality. But the critical thing about these revenue sources is that they are in the future, they are unproven. Facebook is widely rumoured to be going to market now with a valuation of $65bn. That valuation is hard to support until Facebook provides proven, public answers to the questions about how it’s going to generate bucks for brands.

[1] UPDATE 2: To compute the core fan count, we calculate the average number of posts-per-contributing fan. This number ranges from 1.14 for Bob Marley to 2.03 for Bob Marley. Any fan whose comment count is higher than the average is a “core fan”. As you can see it doesn’t take much to become a “core fan” by this measure, making the low totals even more notable.

UPDATE 3: In quick succession we have news that Facebook is delaying its floatation until late 2012, first with their spin and then with bearish rumours. So this delay is either “to keep employees focused on product” [Financial press PR flacks, passim] or “because it missed revenue targets“. I would be inclined to accept both explanations. The challenge for Facebook is that by delaying its floatation a year, we will have progressed on the Gartner hype cycle from the peak of inflated expectations through to the trough of disillusionment. And in the trough of disillusionment people are going to be auditing the performance numbers.

Please share with us, anonymously if you like, evidence that Facebook can generate big bucks for brands.

19 Responses to Can Facebook Work For Brands? [UPDATE 3]

  1. Great post. It’s really refreshing to see this set out in plain English. The value of a Facebook “fan” is debatable and, as always, it all points towards the value of small, genuinely, engaged communities, over vanity statistics.

    • Thank Luke – kudos to you for your earlier post on this topic. Our colleague Mason Porter at Oxford suggests that fan counts – particularly where celebrities are concerned – are a useful gauge of box office potential, particularly with lower-budget stars. It’s hard to disagree with that. It’s a useful “fame” proxy. It’s less effective as a marketing gateway, though, because of the Edgerank effect.

  2. Some interesting points in this post. However, I don’t believe all is lost.

    1. Most brands use FB incorrectly, as a broadcast medium. It is not. It is something which allows you to be interesting and relevant. If you’re not, no one will interact

    2.The core fans enjoyed by Lady GaGa are a brand’s most valuable fans – if a brand only has a core interactive group; these are the ones they need to be marketing to as they are more likely to be interactive elsewhere and therefore, actually, more powerful than the potentially thousands of others who only care what their friends are doing

    3. The value of FB and how it is used could be considered in parallel with the perceived value of a billboard – how did Viacom et al originally value their billboards? Yes, now it is on an OTS basis, but before people fully understood brand building activity, it must have been tricky.

    4. That’s the point. FB/ social media will not work alone. It HAS to be considered as just one tool in the marketing and communications tool box -which all become more effective as more are used to get the job done.

    5. FB is first and foremost a brand building tool. But the pages still need to be interactive, relevant and interesting – only then can the page bring in direct response
    When there are enough eyes on the brand, then you can start counting your responses.

    Just saying…

  3. I’ve been saying this to people since 2008.

    We started with a page on myspace in 2007, it got hacked and never worked right after that. We then did a group page on Facebook, then Facebook said now start a ‘fan’ page.

    I then said let’s call it quits! Why? Because Facebook does not allow you to change your group – simply into a fan page, after all that time you spent. You have to start again from ZERO. And that is what social media is – A FAD! Do this, do that, follow us, like us, jump off a cliff with us. What? Exactly. We’ve all been brain washed.

    It’s also really a CON to all those people who want people to have people like them or follow them. It’s just like motivational speakers that go around the country telling people that they can be millionaires just like them, BUT those people are buying their books and going to see them live and those speakers continue to make millions of dollars. Followers….

    Now I believe in the dream just like everyone else and made great money. But like this article says the only winners are Facebook showing these great stats and celebrities like Lady GaGa, etc. I’ve got to say out of all the people that use Twitter and only person I’ve heard that makes money out of Twitter is Kim Kardashian. She’s the Lady GaGa of Twitter.

    I truly take my hat off to Bill Gates and Steve Jobs, as they built and sold real products. The kids that started myspace, facebook, twitter, etc I just raise my hat in a well-done / good job type gesture “Well done kids for making millions of dollars” out of people like Robert Maxwell and so forth..Nice win!

    These are platforms & NOT products. Now Facebook is great for getting in touch with old friends and family on the other side of the world and was great for people in college – we’ve all seen the movie! Right? The movie shows what Facebook is and how it was formed. A great story, but deep down Facebook is a second life, not a real life. This second life is being sold to everyone and a huge percentage of people are buying into it. It’s the perfect pyramid selling tool for the people THAT STARTED IT.

    Thank you for this article!!!! That’s all I can say. This is a geek nation for sure & the geeks deserve the win! I’m not taking that away from them. The big investors are ploughing millions of millions of dollars into new social start-ups that may never make it, while people continue to starve to death in other countries, our kids are dying in wars that we can’t win, while all we want is more “LIKES” on facebook.

    I’m from the music biz and made pretty good money, although after 9/11 I watched the biz almost die. 10 years on this is a very DIFFERENT WORLD. It’s a social world. What’s that? A made up world.

    I’m going to stop now, but guys….Great article! Good job!

  4. Very interesting article. However, I think it’s essential to note what the “average number of times each fan has commented on a page” statistic is. If this average is a decent number, then while not “core” fans, the millions of other fans may still have effect on the brand. Very important information to prove the point.

    Mark, any response to this?

    • Hi Joseph, we have updated the post with that information. The average post numbers are

      AKON 1.35
      Avril Lavigne 1.42
      Beyonce 1.18
      Black Eyed Peas 1.29
      Bob Marley 1.14
      Cristiano Ronaldo 1.48
      David Guetta 1.16
      Eminem 1.17
      Justin Bieber 1.95
      Katy Perry 1.49
      Lady Gaga 1.82
      Lil Wayne 2.03
      Linkin Park 1.43
      Megan Fox 1.21
      Rihanna 1.33
      Selena Gomez 1.30
      Shakira 1.42
      Taylor Swift 1.32
      Usher 1.39
      Vin Diesel 1.17
      Will Smith 1.22

      Anyone who posts more than this counts as a “core fan”.

  5. I’m not sure how people use Facebook ads, but on campaigns I have been involved it delivered excellent conversion ratios and proved more cost efficient than Google search ads.

  6. Thanks, Mark. That is very powerful information. Basically, all that it takes to be a core fan is to post two to three times on the fan page. Yet, the highest percentage of core fans to total fans is .005%.

    Research in this area is very relevant. Keep it coming!

    All the best.

  7. Comment reposted from Chinwag, as I hadn’t realised that wasn’t the original version of this:

    Does Facebook work for everyone? No. Particularly if, as you point out, brands don’t understand the platform and (more importantly) how peope are using it.

    But I’d suggest that you’re overstating the case somewhat, although it obviously makes for a more contraversial post. On the ads for example:

    “Facebook ads have click-through rates of only 0.011-0.165%, compared to Google’s 0.4-0.7%”

    I’m amazed that you’re even using CTR as a valid statistic – we tend to spend a lot of time trying to get clients to stop obsessing over it. There are two reasons CTR shouldn’t matter:

    It’s not about how many clicks you get, but whether the ones you do get, and the conversions resulting from them, are a cost efficient way of meeting your objectives. And for plenty of clients, in all sorts of sectors, we find that they are.

    All click-through rates on teh webz are terrible – if we use CTR as a KPI, then we’re essentially saying that over 99% of budgets are wasted. But, of course, as offline media have known for years, advertising is about much more than just response. Branding, awareness, consideration are all valid KPIs, and ones that can’t be calculated just by looking at CTRs.

    It’s an interesting post, and you’re certainly right to challenge status-quo thinking. But suggesting, as you seem to, that Facebook flat out doesn’t work for brands, is as wrong-headed as the thinking that it’s some sort of marketing panacea.

  8. Ciaran – great comments. I guess I am waiting for the really compelling data about Facebook advertising. I take your point about CTR. I was mentioning it because of Cliff Chang’s comments. Facebook appears to be a high-engagement environment for communication between friends, but a low engagement environment for brand messages. Of those clicks, what are the conversion rates? Are they better than Google, the same? I would love, love to know.

  9. Highly ironic post from Chris up there, as he’s posting and engaging. Social media isn’t going anywhere, in fact, knowledge and sharing is likely to become monitized, checkout ‘mycube’. Anyway…

    facebook or twitter, whatever, there has to be something solid within the product your selling BEFORE people use facebook as a way to engage. Anything I ‘like’ and become a ‘fan’ of on facebook, is news, brands, stores or magazines that I WANT to glean information and product updates from on a daily basis. OR, it’s something I can access quickly to avoid the need to visit their website or contrastingly slip into an RSS feed.

    Brands must engage with current and prospective groups or communities BEFORE facebook and twitter, social media must be seen as a way to cultivate and then reaffirm, acting as an updater or customer service tool. No doubt things will evolve, however presently, the only way to ‘meaningfully engage’ without prior attention on social, is to offer discount or promotions via the networks. THEN, look to suck them in with a sub-culture..

    Advertising with FB? Forget it, ‘not cool’. We’re there to engage, not be sold directly too.

  10. Low engagement percentages are inevitable. Simply put, if a user wishes to tell visitors to his profile that he sometimes listens to Justin Bieber, Facebook forces him to ‘like’ Justin Bieber’s fan page, regardless of whether he has any interest in interacting with it. It then gives him the option to permanently prevent updates from said page from appearing in his news feed, ensuring that the vast majority of users will never engage with the brand beyond that one initial click and making ‘likes’ fundamentally less than useless for gauging advertising impact.

  11. Interesting article, but the ‘Core fans’ measure seems an unnecessarily tricky metric, for something that is essentially just the number of fans who comment, halved (as 50% will, by definition, comment more than average)

  12. Interesting article, but the conclusion in unwarranted.

    Equating “effectiveness” (of fan page) with “interactions” is un-necessarily restrictive.

    If I am a brand, you are my fan, you do not comment on my page, but you still see my posts, it’s fine.

    Also – give a look at the “info content” of fan comments. Most of the time, it is pretty low, and often there is no “conversation” going on. If 500 people have already commented “sweet” (in any combination of wording) to a certain page post, you do not necessarily want to be number 501.

    You “recently found that the vast majority of fans don’t actually interact with the Page” – it is enough to sum up the number of comments and likes of any page and divide that by the number of fans and the truth of what you say becomes apparent.

    Facebook has recently pulled out the “people speaking about this” metric that counts other stuff besides comments and likes, delivers a slightly larger number, but does not change your conclusion.

    You argue that Facebook pages should be CRM tools – which I guess means actively engaged in a conversation with fans. Fine if you are a Telco, an airline or a PC manufacturer, but most FMCG brands don’t need CRM to interact with the average consumer.

    I know this is uncool, but I believe fan pages can and should be considered just as another media, albeit a media that allows a certain level of interaction from the target.

    Why?

    It is not true that only those that comment or like a post get to see the page’s comments on their feed. For whatever reason, Facebook treats pages better than that. I assume edgerank for pages is calculated differently than edgerank for friends, otherwise I could not explain the (relatively high) number of impressions pages get.

    I would argue that if a page delivers impressions at a reasonable cost per impression that is fine.

    Of course it is nice to have lots of interaction (even if – over a year – it accounts to a couple of % points of your fine base) also because that might drive edgerank.

  13. Mark,

    Great article. However, there is no way the core fan %s are correct.
    I’m a statistician, and for symmetric distributions (ie normal distributions, bell shaped curves), the mean equals the median (which also equals the mode). Therefore assuming 40 million people is approximately normally distributed, roughly 50% of the people will be above the average and 50% will be below the average.
    For example, take Bob Marley, 27 Million fans, 1.14 comments avg, 683 core fans.

    let’s say the other 26,999,317 people commented once. That’s 26,999,317 comments. To achieve an average of 1.14 comments, you need 27 million * 1.14 = 30,800,000 comments. That means the 683 people are responsible for 30,800,000 – 26,999,317 = 3,800,683 comments!! That is 5564.68 comments per core fan.
    That seems highly unlikely. Please help clarify this more, thanks. And feel free to contact me by email.

  14. Hi John,

    Actually we only look here at the average for the unique users that have commented or posted on the page, not the overall fan count.

    The argument here is that the pattern of posting is in fact a long tail distribution: a handful of users drive the conversation on a page while a long tail of users just put one comment and do not interact with the page again. Using the above average metric is a quick way of estimating the head of the tail (the core).

    This is quite well illustrated on http://friends.skyttle.com :

    For the Starbucks page this month: 0.01% of users (~2000) generated nearly 40% of all content on the page.

  15. Hi Mark. This is an old thread i know but i remembered it from when we first started making FB apps for pages. A lot of what was said when you posted this was dead accurate except that you didnt categorize what constituted success. On FB i am noticing that CTR is not as relevant a statistic as impressions and social reach. I cant cite any specific incidence accept ours. Once i started to understand tha algorithm FB instituted i started gaining traction in feeds.

    I will mention though that in the begininning we tag teamed our apps with ads. We went from 30 fans to 200 + in 36 hours and $43.74. With 2 unlikes a few days later. Average cost was .13 CPM . Now we are looking at continuing to tag team these tools until we reach critical mass off 1500 or so fans and we will wean ourselves off the CPM and just run the aps and social engagement strategies to convert. At the end of the day it is all about sales. Even though at this point we are brand building.

    What i would really like to see is actual sales from a proper functioning fan page that does have an ecommerce portal somewhere online vs a page boutiquing right in FB . The stats on fan pages of brands doing brand maintenance is not really a fair comparison to a fan page trying to ecommerce. I am thinking that maybe you should track down pages with no fame halo or planetary mass and see how the fan engagement is there. Also see if the page owner is willing to share his insights with you and his sales analytics.

    Personally i see FB as not a failure for marketing but as the marketers as the failure in FB.

    As for user commenting and liking on a page, that discounts the lurkers. The people that see a comment and come to follow the thread and leave. That is still engagement as it is a brand impression. If and when they go to buy something related to that brand chances are your name is top in their mind.

    Miqui from Build Chatter

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